20090630ICIP to IPC 2-5.pdf

Peter J, Richardson IS8 # 3195
RICH & O'LEARY PLLC515 N. Street
Boise, Idaho 83702
Telephone: (208) 9:38-7901
fax: [phone]
attillDå2!Hry,çgm
REC
2009 JUN 30 PH 12= 25
Attmey fo1" the Industril Custmers of Idaho Powr
BEFORE THE IDAHO PUBLIC UTILITIES COMMSION
IN THE MATTER OF THE
APPUCATION OF IDAHO POWER
COMPANY FOR A CERTlFICA TE OF
IC CONVENIENCE AND
NEe FOR THE LANGLEY
GUl,CH POWER PLANT
) CASE NO. IPC-E-G9-03
)
) INDUSTIAL CUSTOMERS OF
) iDAHO POWER'S RESPONSE TO
) THE SECOND PRODUCTION
) REQUEST OF IDAHO POWER
COMES NOW, The Industrl Customers of Idaho Power and in response to
the First Production Request of Idaho Powr Company, dated June 22,2009, herew
submit th following information:
REQYT NO.2: Plea provide a copy of all testimony and/or comments ICIP
witness Cynthia Michell has presented in any public utilties' commission proceding in
2007, 2008, and 2009.
ICIP'S RESPONSE TO ipeo's SECOND PRODUCTION REQUEST ~ 1
RESPONSE TO REQUEST NO.2:
Please see the attached.
ICIP'S RESPONSE TO IPCO'S SECOND PRODUCTION~EQÜEST ~ 2
BEFORE THE AiSAS PUBLIC SERVICE COMMSSION
;CATION OF
COMPAN
STAAT
SANDA
)
)
) DOCKT NO. 07-975- TF
)
)
''':.:.::':. ":...:.:,': :':....,..'....::.,.
INITIAL TESTIMONY OF CYNHIA MITCHELL
THE ATTORNEY GENRA
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AR.S.AiPUBLlC SERVICE COMMISSION
DOCKET NO. 07-075- TF
INITIAL TESITMONY OF CYNTH MITCHELL
ON BEHAF OF TH ATTORNYGENE~
Please state your name, business afliation, and addres.
I am Cythia Mitchell. Pricipal, Energy Economics;lnc., 530 Co1~gate Cour,
Reno. Nevada 89503.
Please state you.r qualifications.
I am the founder of Energy Ecnomics. Inc., a consulting firm located in Reno,
Nevada. I have 30 yeas experience in energy and water policy and utility
regulatory issues spaning roles as diverse as Uta Communty Action
Association energy specialist on utility rae issues for seniors and low income,
chief economist for the NevådaAttòmey Geiaeral'SiBureau of Consumer
Protection, expert witness to state public utility commissions and consumer
advocate offces in twelve sttes and the Distrct of Columbia, and employment
and consulting with several public and private energy firms. My expertise has
embraced traditional utility rate makng and regulatory mattrs with emphasis on
cOst allocation and rate design; to integrated resource planng (IRP); utí1ty
industr competition, restrctung, deregulation, and alternative regulation.
Durng my lengthy career in energy afai I have cultivated an active interest in
energy effciency, renewables, and public power.
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On whose bell are yoo app~g?
I am appelg on behalf of th Arkaas Attorney General. I was retaed to
review the B;tergy EffGieney Qlùçk Sta Progra Applications individualy fied
by sev~~. utlity ~~ as well as thee Joint Applicaons for
Ge spiño progiais.
iie ~ y~~r iJ!yolvØGent in Aras' eier dfdeq .~ris.
Tii ArkaSll'ubli.~ Commisson ope a rue-:mak docket. in
Janua 2006 regarding the development and implementation of en~ effciency
Pl'grs. (DßCket No. 06-004.,R) I was retain by the Attorney Gera's
Offce iii tht doket to asist them in evaluation of the issues prted, to file
wr~ OORlen. an to pacipate in the scheduled. C0llaPotives. As a result
of ths n:eim, dock~ the COmmSSiOll promulgated tl Rul~ for
Cqseaton an Enrgy Efciency Prs (''t Rules") (Docket No. 06-004-
:R OrdNo. 18. Atiaelmt A.. May 25. 20(7). The Rules direted Aias
utiliti to develop an submit proposas for "Quck Sta" Energ Effciency
Progr aid a cost recøvery rider by July 1. 2007. Seven investor~wn
utilities have :fled individu applicans. IW joint stawide aplications have
ben fied and the gas cøi:es have filed a joint application.
Below is the list of dockets which I was retine to reviw for th
Attorey General? s Offce.
Docket No. 07-075-TF
Docket No. 07-076-TF
Docket No. 07-077-TF
Docket No. 07-078-TF
1) .O?-:081-TF
Doet .07-082.-TF
Oklahoma Ga & Electrc Comany
The Empire Distrct Electrc Company
Arkasas Oklahoma Gas Corpration
Arkasa Weste Gas C
C Point Ene
So esr Electric Power Compy
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Docket No. 07-085-TF
Docket No. 07~079-TF
E:øterg Aikasa;I:è.
Arkan Weatherization Program Joint
Applicatioii
Energy Effciency Arkansas Education
Program Joint Application
Commercia1ndustral Natural Gas Energy
Audit Progr Joint Application
Docket No. 07~083~TF
Docket No. 07-084-TF
In each of the listed dockets, I have reviewed the applications, acconipanying
testimony and exhibits, and responss to the Attorney Geeral's dat requests.
Have YDlì reached any recommendatins Dr e&ndusions basedUPDD your
review?
The AG's Offce finds that the Arkansa Energy Office ("AEO"), the Arkanas
Weathrization Progra ("A WP") Collaborave, and the seven Aikansasutmties
have worked diligently to develop both the joint and individu energy effciency
prog applications. The Commission and all staeholders should be
commended for their collaborative effort to forge new terrtory for energy
progrs in Aikansas. Based on our analysis of all application submissions, the
AG's Office continues to believe that independent adinistrtion would bet
coordinate diverse stakeholder nee to reaze a cohesive, cot~effective energy
effciency program in Arkan. It is not our intention to re-argue the issue of
administrtion at this time. Nor is it our intention to be overly critica of progra
filings. Raer, we offer the followig comments, attached as Exhibit CM~l, in
the spirit of cooperation to provide consctive criticism and recommendåtions in
orde1' to achieve the Commsson's ultimate goals and objectives. i
i Because of the substantial overlap in. may aplicatons and for the ease of the paies in abbreviated
. time for testiony and comment, the AG ha prepáred a single reprt which addreses the resnted
. in all ten ofth"following docket: Doket Nos. 07-075. TF, 07.076. TF, 07..77- TF, 07-078- n, Ð7-079- TF,
07-081-TF, 07-082.TF, 08-073-TF, 07-084-TF, 07-D85-TF.
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Does this eonclude YOUI' teony?
Yes, it does. Th you.
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CERTIICATE OF SERVICE
I, Sar R. Tacker, do hereby certfy that on this 2nd day of Augut, 2007,1
provided a copy of the above and foregoin Intial Testiony to the following persons by
electronic mail to the indicated emai address and by first clas mail:
Lawrence E. Chisenhall, Jr.
Chisenhall, Nestrd & Julían P .A.
400 West Capitol, Suite 2840
Little Rock, AR 72201
ichisenall~cnjiaw.com
Lori Burows
Arkanas Public Service Commission
P.O. Box 400
Little Rock, AR 72203-400
IburrowscIpsc.state.ar .us
Jerrold Oppenheim
Law Offce of Jerrold Oppenheim
57 Middle Street
(Jloucester, Mass. 01930
jerroldopp(democrayandregation.com
~.qMfL/ASar.... R. Tacker
Robert Anthony Ratley
Oklahoma (Jas & Electrc Compay
P.O. Box 1058
Fort Smith, AR 72902..1058
ratley~oge.com
Susan D' Auteuil
Arkans Public Servce Commission
P.O. Box 400
Little Rock, AR 72203-400
susd(sc.state.ar.us
Rose Ada
Executive Director
Arkan Communty Acti.on Agencies
Association, Inc.
300 Spring Street, Suite 1020
Litte Rock, AR 72201
acstotle.net
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EXH.lIT CM-l TO TH
INITIAL TESTIONY OF CYHI MITCHELL
on behalf of
THE ATTORNEY GENERAL
I.t~ 1.-
AUßt 2, 2007
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EXHIBIT CM-l TABLE OF CONTENTS
1. INTRODUCTION ........................................................................................................9
n. GENERAL RECOMMENDA nONS .................... ............................. .............. ......... 10
A. This stage is the Quick Sta stae - the first steps.. ........ .................... ................. 10
B. Statewide coordination is essential- especially now. .......................................... 12
C. Reportng Requiements need to be more comprehensive. .................................. 15
D. EM&V needs to be more extensive. ..................................................................... 17
E. Energy Effciency Cost Recovery Riders should be closely scrtinized. ...... ....... 18
F. Non-Compliance with the Rules should be remedied........................................... 19
III. SPECIFIC PROGRAMS..... ...... ...................... ... ........................................................ 21
A. Energy Efficiency Arkansa Education Program (Docket No. 07-083-TF) ......... 21
B. Individual Education Program (Docket Nos. 07-077- TF, 07-078- TF, and 07-081-
TF).........................................................................................................................23
C. HVAC Contractor Training (Docket Nos. 07-083-TF, 07-085-TF, and 07-076-TF)
...............................................................................................................................23
D. Energy Audits (Docket Nos. 07-085- TF, 07-075 - TF, and 07 ~084- TF)........... ..... 24
E. EE Discount and Incentive Programs.......... ............. ........... ................................. 28
F. Compact Fluorescent Lighting (CFLs) (Docket Nos. 07-085-TF, 07-075-TF, and
07-082-TF)............................................................................................................30
G. Prescriptive and Stadad Performance Offer (SPO) Incentive Programs (Docket
Nos. 07-085-TF and 07-082-TF) .......................................................................... 31
H. LivingWise for Schools Program (Docket No. 07-075-TF) .................................32
IV. SPECIFIC COMMENTS ON INIVIDUAL UTILITY PORTFOLIOS .................. 34
A. EN (Docket No. 07.085- TF) ......... ..... ................................ ......................... ........ 34
B. SWEPCO (Docket No. 07-082-TF)...................................................................... 36
C. OG&E (Docket No. 07-075-TF)...,....................................................................... 37
D. Empire (Docket No. 07-076-TF) .......................................................................... 38
E. CenterPoint (Docket No. 07-081-TF)................................................................... 38
F. AOG (Docket No. 07-077-TF) ............................................................................. 39
G. AWG (Docket No. 07-078-TF)............................................................................. 40
V. CONCLUSION...........................................................................................................40
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1 I.INTRODUCTION
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3 lJuder th recently adopte Rules for COnsRtion and Energy Effciency
4 Progra, seven investor-o'Wed Arkansas utiities have made individua and joint
S appliçaon th Arkasa Public Service Commssion ("APSC") fot, appoval of "Quick
6 Staf' se8I dockets.
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Docke 07-075-TF
Dock~ 07-076"TF
Doet Nn_ 07-077- TF
Doket No. 07-o78-TF
Docket No. 07-081-TF
Docket No. 07-082-TF
Doet No. 07-085" TF
Docket No. 07-079- TF
. Gas & Electrc're Ditrct Electrc y
Arkasa Oldabøn Gas Corraton
Arkan Wester Gas Compy
CenterPoint Energy Arka Gas
Southwestern Electrc Power Company
Entegy Arkansas, Inc.
Aransa Weatherization Progr Joint
A;gpli .
Energy ciency Arkan Eduction
Prog Joint Applcaon
CommecialIndustial Natal Gas Energy
Aqdt Program Joint Application
Docket No. 07~083-TF
Docket No. 07-084- TF
20 Th Commisson an4 all stholder should be commende for their
21 collarative effort to forge new terrtory for energy progras in Arkaiisas. The
22 Aran Energy Offce ("AEO"), th Arkansa Weatherization Program ("AWP")
23 Collaborave!, and the seven Arka utilities have worked diligently to develop both
24 the j9int and individual energy effciency progr applications. Based on our anysis of. .
25 all applicatOn submissions, there are ways in vvich some of the submissions do not
26 comply with the APSC Rules for Conservation and Energy Effciency Progrs (''te
27 Rules") and the AG's Office contiue to believe that independent admnistrtion would
1 The Hum Seice Offce of Community Services (OCS) was the lead agency on the developent of
the propØ8 Arslis W~erization Prng. Oter agencies include The Arkan ComriunRy Action
Agencies Association (ACAAA) and th Arkansas Departent of Health and Human Services (DHHS),
collectvely referred to as the "A WP Collaborative."
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best coordinate diverse stakeholder needs to realze a cohesive, cost-effective energy
2 effciency program in Arkanas. It is not our intention to re-argue the issue of
3 adinistration at this time. Nor is it our intention to be overly critical of program filings,
4 to the extent tht they comply with theR,ules.
5 The AG offers the followig constrctive comments and criticisms in an effort to
6 assist the Commission at ths Quick Sta stage in the shaping of a cohesive and cost-
7 effective energy effciency portolio for Aransas that will ultimately benefit all
8 ratepayers though decreas energy consption by both changing behavior and
9 implementig effcient technologies.
10 Section II. details the AG's:general recommendations for Arkanas' energy
11 effciency pi'Ograms and the statewidepbrtólio as a whole. Section III. focuses upon
12 specific progras or measures which comprse some or all of the utility filings. Section
13 iV. addresses each individual utility applìcations as a whole, recognizig the positive
14 elements the AG has been able to identify as well as offerng suggestions tomodify any
15 negative ascts of the filing.
16 II.
17
GENERAL RECOMMENDATIONS
Each par has made an adnirab1e effort to propose energy effciency programs.
18 However, the AG believes that there are a number of issues that should be addressed åt
19 ths Quick Star stage in order to build a foundation for viable and cost-effective energy
20 effciency programs in the future.
21 A. This stage is the Quick Start stage - the first steps.
22 Arkansa' vision and commitment to energ effciency requies that the first steps
23 taen toward this effort (i.e. this Quick Sta stae) are contemplative, deliberat, precise,
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1 an ur. Th AG is, fry, overelmed by the nuber and complexity of the
2 "quiçk st' Pf~~~ filed by the utlities. In ~tion, the AG is ÇQce~ th th
3 pr~p~s . v~~e.and Ine(mpie.
4 To ad$$. tWs~ thlt AG _C$ th following two.recommeidations. Firs the
5 two itawid. jointappli~~tions, the .Å~ Weaeriaon Progr ("A WP") an.th
6 Ener Effàency Arkansa Education Progr ("EEA"), should begi imed
7 implemtaion with a phased rol1-out of th individual utility EE Prs only afer the
8 launch of th AW' an EEA progr. Seciid, the Cossion should ~ve th
9 individuW utlities' propse. budets, but modify the Cient proposa as suggst~
10 herein an reqlUe GQntined improvemnt of progn desgn Rusing to "roll--ut" all
11 of tl U;lities proos BE activities and progras simultaeously to ma a somewh
12 ar~ O~iøhe ZQQ7 deaine mllY create a "ane ste forward, two steps bak"
13 situtiø;i fa¡ th 20W progr~ cycle. Without $e befit of a coordinte prona
14 desigi2 among~t th EEA sÇtewide progr and the utilities, this is a li~ly ~o.
15 Whle ~ffv~s is. not th top prority iii these intial applicaons3, ths do not
16 mean tht th Common should be un~ with issues of co~effecveness
2 See D. Q6004-R, Order 12, dad Janua i 1, 2007, Attachment D, Rules for Conservation and EE
Prgrs, Setion 5: Pla Filng Reqirements, Subsecon D. Uniformity of Programs: "Prgrs
adesing bo elecc and ga cusomer shall be cordate to the extent reasonabe. Fuel switching
and loa building prog shall not be included as EE progr."
3 In pa beus many of the propose programs such as audits are not held to strict cost-effteveness
cri or - in the ca of propose utlity reb prøgs - ar of too limited scope or magitude to be
consided mor pilots or prprgrs, they are generlly not held to the sae standa of cost-
effeceD as ful-sce com,preisive progrs and pilots.4 The pr~s tlat 've
udli
rebate incetive prgrs. imilarly. t;o of the elec
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1 Dug ths initial program cycle, the Commssion, the utlities, ratepayers, and
2 ,other staeholder, should be priarly concered with inonnation and intellgence
3 gathering in order to set the stage for a larger and successfu EE program roll~6utin 2Ulô.
4 Arkasas' initial EE actvities should not be primarly abut immediate nea teì'm energy
5 savings, but should focus on building the foundation and infrastrctu for reliable long-
6 tenn, susted sangs.
7 B. Statewide coordiiitiOD is esseDtial- especially DOW.
8 Eah utility has proposed certn prògrams which comprise a portolio for that
9 speific utility. Each utlity's portolio is a piece of the statewide portfolio. The AG has
10 prepar Ta.bles 1 and 2 to provide a high-level overvew of the resulting statewide
11 energy effciency portolio. Table 1 (printed on page 13) demonsates how the EEA and
12 the seven utilties' individua programs align with one another. The ABO's EEA an the
13 seven utilitiès are listed across the top of Táble 1, showing tota proposed budgets and
14 forecasted energy savings (MWh an MW, wher applicable. Proposed EE
15 programs/meaures are listed down the left colum and proposed progrnîèase
16 budgets are indicate for EEA and correspondig utilities in the bo of th table. Table
17 2 (printed on page i 5) provides a sumar of the pröposedsttewide portoiio costs for
18 . A WP, EEA, and the seven utilty applications, as well as the attempted reoncilation of
19 costs.
ams that would be stonger ifeordinate intoone progr ga and elece cutomers. The Commission
reogniz the beefts of sùch coordination in D.()R. See footnote "2."
12
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13
1 When looking at ths stewide portolio as presented in Table 1, the overlap
2 pro~ design and possible duplicaon of effort, and therefore possible ineffqi~nt us
3 of raepayer money, is evident. Given the apparnt redundacies and gaps in p~ø~~
4 design and market strategy when aJlp~~s.ate viewed as a w~le,snmem~içaons
5 are called for to faciltate effective and coordinaed effort in the futue. The sucessof
6 the working group process used to develop the statewide coordinated EEA and :A WPis
7 evident in the resulting detail and comprehensiveness of their program proposas.
8 The joint statewide proposas have made a good star on coUahurationand
9 intrctue building. Likewise, the indiVidual utility proposed EEiptograms could be
10 coordinated in a sìiìlar maner.
11 There are information gaps in the inividua utility filings. For example,looking
12 at the ~dgetar impact of the statewide energy effciency programs in Tat1le ~,the 27~
13 month "Quick Star" portfolio has a proposed cost of $17.743 million dollars, with nealy
14 $12nilHon atbuted to E:AI's budget alone, yet the AG wa ti~~i:eto tree atotUd $l.~
15inilliol\to any specific application. 'Wile some of the differef:ce iš duetocoliaborative
16 COsts not reflected in this table, the collaborative costs were relatively.small comPaed to
17 this .iarger budget disparity.
14
Table 2
Sumar of A WP, EEA, and Utiltt~Specific Program Costs, and
Atte st Reconcilaron
it-
SpecificArksaEnergy Effciency Sum of
AWP,AEO,
andWeatheronAran (EEA)Programs
pe AG Table
1
$8,580,000
$1,330,600
$543,946
$99,000
$400,QOO
$219,746
$94,880
AGTabie 1
$10,276,911
$1,736,195
$885,777
$110,994
$2,615,911
$669,026
$257,457
Enter
SWEPCO
OGE
Empire
CenterPoint
AWG
AOG
oter
utilities
Tota
i
923
600
$1,954,179
$362,817
$134,756
$479,311
$67,895
$37,908
$2,394
$261,732
$86,463
$27,821
nla
$4,32'0,575
$261,942
$1,225,466 $11,268,172 $16,552,271 $17,742,733
Total
Proposed
Budget
Utilty
Differe
Utility Applications
A licaons
$11,886,,00
$1,770,00
$1,020,987
$115,839
$2,004,000
S670,(ß6
$275,871
"Sum or' Colum
Sl,609,089
$33,805
$135,210
$4,845
-$611,911
$1,010
$18,414
2 It is the AG's position that modifying the individual programs to a) resolve ths
3 budget disparty and other information gaps and b) conform to a more comprehensive,
4 sttewide approach, such as used in EEA and AWP, would provide a better "bag" for
5 the seventeen millon "bucks" that are dedicated to energy effciency progra.
6 C. ReportBg Requlrements nee to be more comprehensive.
7 It is essential that the Commssion estlish a consistent reportng requiements
8 formt for the planng and reportng aspects of the varous EE program actvities,
9 . budets, and savings. Report reuirements are an importt ingredient to improve the
10 quaity and ~fuess of information and date presented. As a mar~of- fact, when
11 developin the crtena for reportg requiements, the Commission should consider that
12 the inclusiop. of mor~ data rater than less, provides a broader rage of information to a
13 diverse set of staeholde. The AG recmmends that the following rertng
14 requiremts be esblished and in place prior to the upcoming April Anual Report.
15
$1,190,462
1 1.Detailed Reportg
2 Detaled reportg of energy effciency results will provide understanding of
3 program impacts iOn system reliabilty, procurement planng, and environmental effects
4 - ail of which are of great interest to both policy makers and consumers. In parcular,
5 reportng data should provide insight into the caculation of ratepayer bil impats. The
recommends that the Commission should include, as a pa of data reprtg, saving
7 bylO: key end useIl; cents per kWh and dollars per kW and dollars per thens basisl2;
8 load shapes13; individua progr stategiesl4; and annua and lifecyc1e emissions
9 savings.
10 2.At-a-Glance Reporting
11 While detaled reports are critical, the Commission should also dirt program
12 administrators to provide high level data to. be organize on one table to ai10w policy
13 makers and staeholders to view progr impacts in a comprehensive, easy-to-reference
14 formt.
15 3.Budgets
16 Summar budgets should have line ites of programs
17 including but not limited to: administration, program implementtion, incentives, atd
18 EM& V. In many instaces there is curently not enough information in the individual
10 This list is not exhaustive. As discussed herein, the Commission should survey energy effciency
progrs in other state to identify reportng models, to be refied the context of a working group that
would result in a Commission ruling.II Spac heating, space cooling, water heag, lighg, refrigeration; by residential, commercial, industral,
peak demand MW and annual energy MWh.12 Comparble data should be reprted for kW as well as kWh. Viewing results only on a kWh basis
provide an incomplete pictue of relatve costs of varous EE measures. For example, the kW pe unit cost
is an equany important consideration when considerig power plants.
13 Load shapes will provide impot infÐhaton 0! the sesonal and time-occurence of savings.14 Individual program strategies, for example, would disguish "point of sae" rebas from "direct install"
rebates. Such data assist in determining whetr .cein stratgies are more promising and cost-(ffecive
than others or whether a progr may require impròvement.
16
1 utilty applica'6n filings to fuly understad or trce th proposed budgets by these
2 spending cagories.
3 4.Timelies
4 Reprtng requiements showd al include clealy arculate tielines an4
5 milestonø (anl., sei- and quaerly) on both a program planng and reg basis.
6 Individua utity prelimna draf slowd be reviewed, discus and coordate
7 across utlitis an with AEO as pa of its administtion of the statewide EEA progr.
8 D. EM&V nees to be more extensive.
9 EM& V (evaluaon, measurement, and verification) is comprised of a very broad
10 field of activities that involves the final "impact evaluation" to be used for reportng ex
11 post progr peformance anysis, hut also equaly as importt, proactive market
12 anysis and ealy program design and market strategy analysis -- some of which ca
13 inebide re time impact evaluation. To some e~tent, the utiities all propose some
14 versic. of fi ÌIpat evaluaton activities.
15 While a good sta, mllcli more EM& V work needs to be performed. At a
16 minimum most progs ne to collect initial pre~measure data before progr sta: in
17 order to determne from the outset a basline to asrtn the de~ of impact li progr
18 ha ha This sort of baline m~urement must also be estabLished for infomiion-
19 based progrs such as eduction, maeting, an outreach activities. For example,
20 evaluaors should suey consumer in various ways, such as focus groups, to det~ine
21 levels of awareness an attitudes in order to determine the amount of infuence that
22 information prograt have had. Such evaluation not only meaures the change in
23 consumer awaress/atttudes but also provides feedback to improve information
17
1 programs and provides accountabilty for all ratepayer dollars spent. Information
2 program budgets are in large par being delivered on a statewide basis via theEEA.
3 Accordingly, EM&V activities should be coordinated and fuded on a statewide level as
4 well as at the loca impact leveL. For exaiple, the possible $1.2 millon disparity
5 identified in Table 2 could be dedicated to EM&V activities to be managed by thePSC
6 Sta or an independent consultant. Whle the AG is certainly not recommending an
7 increase of the total $17 millon budget for all utilities, a reallocaton of some budget
8 activities1S could also ensure that an appropriate share of the EE budget is allocated to
9 EM&V.
10 E. Energy Effciency Cost Recovery Riders should be closely scrutinized.
11 There appes to be a great varety among the applications andeachindividua
12 utility's requested Energy Effciency Cost Recover Rider (BECR). The AG
13 recommends that the Commission adopt a unform formula for calculatig the EEeR and
14 that the uniform formula be applied to each utilty and included in each taff. Ths will
15 provide other paries to ths matter, the AG, Sta, and other intervenors, a mease of
16 consistency that ca be expected from anua report that are filed. In addition, such
17 uniformity will save time and simplify any pary's review of monies collected.
18 The AG recommends that any tariff include a mechanism to ensure that the only
19 costs that a utilty is seeking to recover though the EECR are incremental costs. The
20 Rules limit cost recovery to "the incremental costs which represent the direct progra
21 costs that ar not already included in the then curent rate of the utility.
IS For example, fUdìng for information progrs identifed below, which.are found to be duplicative,
could be re-channeled toward this effort.16 APSC Rules for Conservation and Energy Efficiency Programs, Section 7.A., page 8.
18
1 Also, as disç~ in more detl below, cost recvery for EE Progr does not
2 inci lost revenue. This inclusion is oot authoried by either the Rules or Order No.
3 18 of J)ket Q6-O4~R.
4
5
Non-Complinçe with tbe Ra.les should be remedied.
filings ~ raise some rmor concers
F.
6 reguding ~hutility' s .Qompltance with the RuJes for Conservation an Bneigy
7 Effci~9Y Programs. The AG would lik to address thee major ar of non-
8 compliance: atU1Pte cost reover of lost revenues, progrs that encoure ful
9 switching, ~ th requiement that all quick st progrs have a high probabilty of
10 providing ratepayei benefits to the majority of austomer.
11 AOG ha req~ed lost reimburinent as pa of its budget for the A WP.
12 The RuJes specify that cost reovery is limi~ to the incrementa cost of tl EE
13 program.17 ln ruin on AOG's Petition for Reheaing in Docket No. 06-0QLR
14 regarng ths i~, the Commission reitea~ its prvious fi that "the apprpriat
15 stng poin to evaluate inclusion of lost revenues or deoup1ing mechas is in a rate
16 cae."IS Inc1usI()n oflost revenues is completely inappropriate for recvery in ths
17 progr filin
18 Progrs th encourage ful switchi or fu1 substitution ue prohibite un~
19 the Rul.19 Th AG has identified two program which would potentially violat ths
20 prohibition and recommends specific changes to these program plans to ads the issue
21 in Section llI.E.3.
17 APSC Rules fQr CQnsation and Etler Effciency Progs, Section 7.A and B.
18 Docet No. 06-Ø0-R, Orde No. 18, page 6
19 APSC Rules for Conservation and Energy Effciency Prgrs, Section 8.
19
1 The Rules require that Quick Sta Progrs may be chosen from. a list included
2 on pages 9 and 10.20 The Rules fuer requi tht the Quck Sta Progras included in
3 any Initial Plan Filng "should have a high probabilty of providing ratepayer benefits to
4 the majority of customers.21 The Rules do not make any finding that inclusion on the list
5 creates a presumption that the program has a "high probabilty of providing ratepayer
6 benefits to the majority of customer." Rather, the Rules require the utlity to establish
7 the "high probabilty of success" for a program to be eligible as a quick sta program.
8 The AG has not be able to find in the utilities' applications where it ha ben
9 demonstrte that the programs chosen to be included in the plan fiing had a high
10 probabilty of providing ratepayer bei'efits.to themajörity of customers.
11 Section 5.0. of the Rules provides fuher clarfication of what should be included
12 in an Initial Plan Filng as Quick Star Program. "Quick Star Programs are.progrs
13 that are limited in natue and that in other jursdictons have ben shown to have a high
14 probabilty of providing aggregate ratepayer benefits to the majority of utilty
15 customers.,,22 Whle some of the programs have ben used in other jursdictons23, the
16 individual filings do not indicate whether or not similar progrs have ben used in other
17 jursdictions and shown to have a high probabilty of benefits. The utilties should be
18 directed to engage in fuher development of progra design, a component of which
19 could include a showing tht a chosen progr ha been shown in other jursdictions to
20 APSC Rules for Conservation and Energy Effciency Progras, Section 8.A
21 ld., Section 8.A., page 10.
22 Id., Section 5.G, page 6.
23 See SWEPCO's Responses to AG DR i, where the utility pl'ovides infonnation on the Nortwest Enel'gy
Effciency Allance's sUCcesSful Energy Sta FløineProducts Prorgr,andthe Nørt~st Residential
Energy Star Product Initiative; see OG&E's Responses to AG DR 1-5, indicating that the LivingWise fGrSchools progr has been used in other jursdictions.
20
1 have a high prnbailty of providing rateyer benefits to the majority of customers
2 consistent with th AG's recendation in Setion ILA.
3 m. SPECIFIC PROGRAS
4 A. EJlap Effieue AikaDS8 Eèuetiou Prem (Deke No.. 01-8- TF
S ArkaD i'S a smal stae with a lare ru COJXnent and may dentrized
6 utilties. Energy effciency objectives ar fuer chalenged by the state's history of fuel
7 copetition and fuel switching, In order to optimize economies of scale and scope and to
8 exercise market leverae, Arkasa win need to rely on greater statewide coordnation.
9 Accrdingly, it will be necessary to identify a neutral voice of authority with expertse in
10 energy effciency. For the AG, it is clea, at least initially, tht the appropriate
11 organiaon for such a task is the AEO. The AEO has been the backbone in settng the
12 foundation for the Commission's key objective to incree awareness regardin the
13 importce of saving energy.
14 The ABO is well positioned to drve energy savings to utilties though education,
15 informaton, outreach (EIIO), and trning. This is ilustrted in their program
16 aplication:
17 As describe in the MOD, the EEA Program was develope jointly by
18 the Appli~ an th ABO to cost-effecvely deliver relevant,
19 consistent, and fuel neutral information and trning tht causs people
20 to conse les enegy though BE and constion meaur.
21 Through the EEA Prgram, the Applicats win be able to combine
22 th reurces md lever tke knowledge, expertse and skls of the
23 AEO to promote a statewide educaton progra in the most cost-24 effective maner.24
25
26 The Application fuer states:
27
24 D~ket No. 07~083. TF, Joint Application, Item 3, page 2.
21
1 Neverteless, even Without a benefit..eosftest, it is readily apparnt
2 from the MOD that the EEA Progr, because it has beendevelQped
3 jointly among the Applicants and the AcO. taùe the most cost..
4 effectve and will be coordinated and managed by a single entity,
5 represents a more cost-effective mean for promoting EE awareness
6 and delivering EE information and trng to the Arkasa
7 marketplace than having separate, dijointed education program by
8 each utüity, or indeed, compared to any other alternative meas for
9 educatig consers about energy effciency tht does not involve a
10 single, staWide-coordited and staWide~adinistered education
11 program. (emphasis added.)25
12
13 Given the signficant potential for results that the ABO's education and trning
14 progras could have, the AG finds that the proposed budget may be limited. The AEO's
15 budget of $1.2 milion is already bare bones ($951,000 for ElO and $117,567 for
16 HV AC contrctor and inspector trainig). Accordingly, the AG believes that it may be
17 appropriate to supplement their budget now. The AG recommends that the Commission
18 consider increased fuding of the AEO by reallocating the surlus fuds identified in
19 Table 2 or from re-chaneled programs such as the duplicative gas education programs
20 discussed below.
21 It is importt that the connection between AEO activities and utlity programs be
22 understood, developed, and strengtened. For instace, direct synergies should be
23 developed between the AEO's education component and utilty incentive programs, in
24 par through utilty customer bil inserts -~ and when up and rug, though the AEO' s
25 new EEA website. This meas tht the utilities must work With the AE as they develop
26 their program .design and market stategy so that the AEO is able to meaningfuly plan
27 and coordinate its education, information, outreach, and trning activities to dovetal
28 With utility program strategies.
25 Docket No. 07-083- TF, Joint Application, Item 13, page 4.
22
1 Jl l.d' al :E.~nProam (lektNes. 07-&77-TF, 07-&78-TF, aD 07-2 est
3
4 The gas edcation progrs propose by CenterPoint (Docket No. 07-081- TF),
5 AWG (Dket No. 07-078-TF), and AOO (Docket No. 07-077-TF) ar uneceary
6 consideng the joint application for the EEA. The gas companies parcipated in the jßint
7 EEA application, which sttes that education thugh AEO is "a more cost~effective
8 mea for promotig EE awaness and deliverng EE information and trning to the
9 Arkan maretplace than having separ, disjointed eduction programs by eah
10 utlity. ,,26 Funs earked for these progrs should be re-chanled elsewhere.
11 If the Commssion stll choses to allow thse programs, th information that will
12 be dissmina should be scrunized to insure that the utilities are not engaing in
13 brandig, advertising, or encouragement of fuel switchig.
14 C. HV AC Contrator Traning (focket Nos 07-083-TF, 07-&TF, aJld 07-&6-is TF .
16
17 The AEOha propose HVAC contor~:n on pr ~wng ofHV AC
18 equipmt and duct testng and seaing (Docket No. 07-083- TF). They have also
19 propose to tae up th nationa Home Energy Raters Syste (HRS) progra an begin
20 trning HERS quaified techncians.27 The budgets of $80,277 for HV AC contractor
21 training, an $37,290 for HERS rater trg reflect an initial progr cycle modest
22 level of activity.
23 Table i shows that EAI (Docket No. 07-085- TF) and Empire (Docket No. 07-
24 076-TF) have propose HV AC Tune-up progrs ($717,000 and $36,000 respectively).-
4.
. USeEEA MOU Exhibit A, paes9 thug
26 Docket
27 Docket
11, for discussion of
23
1 with EAI indicatig (wìthout budget itemization) that par of the progra activi wil
2 include contrctor tring.28 EAI's propose tune-up traing progr differs from the
3 AEO's in that EAI apparently intends to focus on makng existng HV AC unts opeate
4 more efficiently thoiigh proper refrigerant charge and air flow.29 Ideally, Arkansas
5 HV AC contractors should be traied and financially incented to properly size, properly
6 instal (including ensuring proper levels of refrigerat charge and checking ai flow), and
7 test and sea the air handling duct system.
8 The AG recommends that the Commission direct EAI and Empire to work wìth
9 the AEO to the extent possible, cordinating the two vita HV AC contractor trning
10 components. Most importantly, the Commission may wìsh to have a mid-program cycle
11 report (pssibly in conjunction wìth the April 2008 anua report) serve as the bais of
12 possible next steps and directions for the state with regard to improving the effciency of
13 residential and small commercial space coling loads.
14 D. Energ Audits (DketNos. 07-Ø85-TF, 07-65-TF, and 07-084TF)
15 The AG supports the availabilty of audits for all customer categories, including
16 single- and multi-family rentals; small, medium, large commercial; industrial; and
17 governenta, including schools.
18 The AG is pleased tht most if not all of the Arkansa utilities alredy offer either
19 electronic and/or paper self-adinstered residential audits. As par of its new EEA
20 website, cOI1l.ers will also be able to access a residential electronic audit. EAI (Docket
21 No. 07-085-TF) and OG&E (Docket No. 07-075-TF) are also proposing trined
22 technician walk-though for residential audits (See Table 1: $1.415 M and $ 1 19,250
28 Docket No. 07-085- TF, Exhibit KWC- i to the Direc Tesmony Kurs W. Caslebe,EE Prògr
Descriptions, Residential and Commrcial AlC Tune-Up Quick Sta Progr, pages i 2 - i 7.
24
1 resptiv~iy.) As pa oftb joint gas utilities applicaion (DketNo. 07-084- TF),
2 CenterPnint, A WO, and AOG are prposi a commerciallindusal gas-only audit
3 progr budgeted at a combined tota ofS305,000.
4 The AGha itktiæ ar in which these progr plan could be modified to
5 tae advane of effciene,ies real
6 1. The utiti should work with the ABO on providing self-
7 admnistered el~nicand paper audits for the often overlooked
8 multi-family and small commrcial customer categories with
9 ~C1 atention to mitigating baers for the split~incentive of
10 the tena - lan sitution.
11 2. All audits (self-adiniste an traine techncian, whether
12 cqrercial, or industral) should collect information
13 related to estiated age and effciency of major energ using
14 øqlßm,t and aplies such as fl AC, chillers, boilers, water
15 hea, and i;efrigeron Th.s information and data shoulp. be fed
16 into a da bas that is used in pa to (1) inform a possible future
17 sty on the stte~s UDtepe EE potential; and (2) lay the
18 groundwork for fu customer contat as to the availabilty of
19 new utility EE reba and discounts opportunties available and as
20 expensive energy usin equipment and appliances approach the
21 end of their usfu physical lives.
22 In addition to providing screw-in CFLs, the tred technician
23 wal-though residential audits should also consider additional
25
1
2
3
4 4.
5
6 5.
7
8
9 6.
10
11
12
13
14
15
16
17
18
19
"quick and easy" and relatively low-cost EE measures such as
water heater wrap, faucet an shower aerators, electrcal outlet
insulators, etc.30
A limt on th maximum number of CFLs insled per household
should be setl and auditors should record where insta1ed.3z
EAJ and OO&E should clarfy the tyes and amounts of EE
discount coupons it proposes to provide to consumer as par of the
walk ~though audit.
Customers completng either the self-adinistered electronic or
paper audits showd also receive a "tool 1xx?' of quick and easy
low-cos EE meases.
Program design should be focused on increaing customer
paricipation in self-adnistere audits in the initial program cycle
in the absence of increaed customer incetive offerigs such as
rebates and,point of sae discounts for energy efficient small
appliances and equipment. Residential walk-though audits - while
potentially the most effective ty of audit when peorm in-
peson - are redered less effective whenreoote incentives are
limited and thus more prone to customer fration.
30 As wil be discussed later in our comments, the AG recmmends that for the initial progr cycle, quick
and easy low cot EE meaures be given direcly to adults, not children as in OGE's proposed LivigWise
School Program.31 As wil be discussed below, this maxmwn should extend to the number of CFL coupons that each
household is eligible for.32 Deemed savings estimates var widely depending on CFL location (living room, kitchen, bedroom,
closet) and resltat hours of operation ("run time".)
26
1 8.Additionally, th Commis.siou should dict the utilities to consider
2 an audit prognstat tht applie a nomial fee tht would not
3 be co-prohibitve for residtntial and sm commercial auits.
4 Ths w,ould provide aditiona fuds which could be applied
5 (reimbmsed) for energy-saving meaures. For larger C&I
6 custoner, the AG believes tht a fee for audits is approate and
7 renable. A fee for audits woul alluw all or a porton of the
8 . cost applicable to energy-savingmeaures and/or the utilties could
9 use the payment instead to put more EE meases into the pipeline.
10 Table 1 ilus tht the thee g~ utlitie$ - CenterPoint, AWG,
11 and AOG ~ appantly pla n() disCQunts or inntives for any of
12 their cusmers, including C&I.
13 9.The Commission should not approve the joint gas utiities
14 appli~øn audt program or CenterPoint A WG, an AOG
15 (Docket No. 07 ~OR4 TF) beuse 1) it is a gas-.uly audit
progr,33 an 2) it dOO not j.clude, nor is it lin~ to, any gas-16
17 utility discounts or inceritivesfor BE imrovements. 34 As
18 discussed fuer in the following section, the AG reommends
33 See Doet No. 07..84- TF, Joint Application of CenterPoint, AOG, and A WG for approval of the
Commercialdustial Natl Gas Energy Audit program, Exibit A, Quick Sta Template, Progr
Desig, pae 2: "The Audit wil be limited to evaluang and analyzing only natul gas energy savings
opponities and wiU provide limite if any, information on a cusomers' electrc or watr usage. Since
the audit wi1 not pracvely address elecic energy consumption and elecic energ savings0.rpoities die audit wil be prarlY tì viÐs."3 See soure reference footnote
page 5: "The is an indir impa progr aD. .,. ~re w n ..
quati the ext th Commission's
this ~ l:Vce ~ savings, th thre utilies
.leaon seekin appr.aval fGrthpr. Althug il1 be no .d~d
savings for the is prgr the intetion is that the recomendatons, if implerneÐted wil
ultimately lead to ener savings."
27
1 that as an alterntivê,the gas utilities work with EAl, SWEPCO,
2 and OG&E to complement their proposed C&I customer
3 prescnptive rebate progr (for which EAr also has an audit
4 component) in order to increase gas efficiency improvements and
5 to offer gas EE measures under a co-brading supplement with the
propod electrc utilty progr budgets.3s This may also reduce6
7 the cost, and any excess fuds could be used to finance additional
8 EM& V or ABO infasctur, as noted above.
9 E. EE Discount and Incentive Programs
10 The us of discounts and incentives is sprined widely thughout the utilities'
11 program offerngs.36 Any progr that includes a discunt or incetive should adere to
12 a few basic pnncip1es.
13 1.Easy Access
14 First, progr design should featue easy access to higher effciency equipment
15 and appliances. Because the initial progra offers are to have relatively modest budgets
16 and as a result limted paicipaion, the AG reommends tht a more refined strategic
17 approach be used to more selectively recrut progr parcipats that will assist in
35 Our recommendation is consistent with Order 18, Attchment A, Rules for Conservation and Ene
Effciency Progrms, Setion 5.D. Uniformity of Progs, page 5.36 HVAC Tune-ups by EAI and Empire (discussd above in Seon II.B.), CFL Copons by EAl,
SWEPCO, and OG&E (discussed below in Secon II.E.), Coercial Lightig by OG&E, Energy St
Appliances by SWEPCO and EAl (discu below in Secton II.E.3 and IV.B), CommerciallIndial
Stdard Perforance Offer by EAI and SWEPCO(discsed in Setion II.G.), Commeral
Prescriptive Incentives by EAI and Empir (discuss in Secion II.G.), and Motor Replaent by OG&E
(discussed in Section IV.C.).
28
1 forming futu progr direction. In th way, the utlities will be able to avoid crti
2 custmer frstration or backas beca of ealy oversuscription of progams. 37
3 2.Identity of Meaures and Incetive Levels
4 Se~ prgrdeign shd provide spific detas regardi th meur to
5 be included or coveret and th rebate or inntive levels. May of th progr plan
6 either do not specify or only p~ally specify these vita details. Ths inormation should
7 be piovis:~ to :te extent possible, in a sumy format across all utilities and progrs
8 as a fit ste to improve the undersing of what the utilties plan to imlement -.. a.
9 at what cost to ratepayers and benefit to program parcipants. Next steps would include
10 identifying opportities to make meaure offerngs and incentive levels cooisteni38
11 where appropriate, and to consolidate activities and offerings in order to speed program
12 implemntaon, reduce adminstrtive/overhead costs, and minimize customer confuion.
13 3.Fuel Neutity
14 It appears from the AG's review ofSWEPCO's application and EAI's application
15 tht both intend to provide customers with ENERGY STAR appliance coupons.39
16 SWEPCO's program plan specifically identifies that an Energy Sta heat pump is eligible
17 for a $400.00 rebat/coupon.40 Although EAI's applicaton doe not specificaly
18 referece hea pumps, they could be included in the description of "Energy Star
37 For insce, EAt's prpose solution to oversubsciption "of esblishing a waiting list for the next
budget year . sHy tum customers off to effciency and create long lastig utility reentment. See
Doet No. 0 TF, Testimony of Kurs W. Catlebe, Exhibit KWC-l, EAJ BE Progr
Deiptions, last bullet point under "Program Design" for each of EArs individual propod progrs.38 For e .o rebae progam (Dke No. 07-082-TF, Testimony ofBi1y G. Bey, ~ibit
BGB-4) in l(~atesincentive levels than the coupons available though EArs Residential Home
Energy Solutions Prgi: (Docket No. 07-085-TF, Testimony of Kurs W. Castleberr, Exhibit KWC-l,
begining page 7.) .
3~ Doeket No. 07-082- TF, Testiony of Bily G. Berny, Exhibit BGB-4 and Docket No. 07-085. TF,
Testiony of Kur W. Casleber, Exhibit KWC-I, be . 7, repevely.
40 Docket No. 07-082- TF, Testiony of Bily G. Bery, B-4, pae i.
29
1 appliances.,,41 The Rules strongly sttes that all programs should be fuel neutral and
2 "compliant with the Commssion Rules and Regulations Govering Promotiona
3 Practices of Electric and Ga Utilities, includig restrctions on fuel substitution ... ,,42
4 The heat pump rebates, as they exist as a component of the identified progrs, could
5 encourage fuel switching and be in violation of the Promotional Practices Rules. To
6 address this problem, the AG is recommending that the progrm plans be modified to
7 state that eligibilty for a heat pump rebate or coupon wil be limited to those customers
8 who ar replacing an existing ineffcienfheat pup.
9 F. Compact Fluoreent Lighting (CFL) (Docket Nos. 07-085-TF, 07-o75-TF, and
10 07-682- TF)
11 Table 1 shows tht EAI (Docket No. 07-085-TF) and OG&E (Docket No. 07-075-
12 TF) have proposed residential CFL incentive programs while SWEPCO (Docket No. 07-
13 082- TF) ha proposed CFt programs for both residential and small commercial sectors.
14 Customer parcipate in these coupon-basd as par of audts (EAI and OG&E) or
15 though bil-stffers (SWEPCO). The AG support increaing consumer awareness of
16 the beefits of incandescent light bulb replacements with CFLs. However, the AG asks
17 the Commssion to closely scrutinize the programs, in view of the increased rate at which
18 CFL adoption is occuring, ths, in large par to organizations such as Wal-Mar (the.
19 2007 100 millon CFt campagn), With increased market penetration through both
20 ratepayer subsigy and marketplace effort, CFts have made great strdes in bec()J:ilg
21 more widely adopted by consers. For ince, the Nortwest Energy EffcienCY
22 Allance (coordinating energy efficiency effort across the four sttes ofWashigtòJi
23 Oregon, Wyoming, and Montana) no longer recommends utilty CFL rebates and
41 Docket
No. 07-(85-TF, Testimony of Kurs W. Castleberr, Exhibit KWC-I, pae lö.42 APSC Rules for Conseration and Energy Effciency, Section 8: Program Plan, page 9.
30
discunts, fidÙlg. tboug market studies, tht the market ha ben tranformed and they
2 are .0 longer necessay.
3 ~ AG w:ould encoure th Commission to reuire that any CFL progr
4 include elements of market resch to indicate where and how any incentives ar
5 neede. The Commsson shd ronsider requiri the modification of thes CFL
6 progrs to incl'l alternatives avenues for increang penetrion rates of eFLs. Thi
7 ca be acmplished by complementing the existing discounts at Wal-Ma and oter
S "big pox" retailefS, while being caeful not to duplicate effort or spend umecsa
9 money thou.gh infated incentives.43 It may be th~t utilites simply ne to ~~drive"
1 0 consumers to st~ like Wal-Ma for discunte eFLs at the sae time thronsers
i i ar utilizig the available audit progr. Ths could also give rise to in~red
12 coordion to promote other energy effciency measures, such as Energy Sta off-the-
13 shelf ("plug. and play") appliances and equipmet - suh as torchiere lamps, regertofS,
14 washefS, drt~ 4ishwashers, and room air conditioning unts.
15 FlBer, t. AG believes th the utilities would be mistaen to undee a
16 strte of usin ~er coupos whe maufctuer wholesae buy down and point of
17 salt retl dicollts are much more effective. For instace, tle California utlities have
18 switche o).t of par reb~~s in.. favor of electro me "instat'~ point-of-sale discounts and
19 electronic rebate applications and procesing. Ths has increasd program pacipation.
20 and reduç progla adistrti:ve and over~ cost.
21
22
G.Presriptive and Standard Penormø~ Offer (SPO) In~ntîve Progams
~ketNos. 07-085-TF aø$! 07-Q82,.TF
43 EAl preOflse $3 off 3-pks and $4 off 5-pa of CFLs; SWEPCO proposes $2 off for maximum of 6
bulbs; and OG&E proposes $1 off a CFL pack with number of bulbs in the package not specified.
31
1 It is imperative that prescriptive and SPO incentive progr include pre-
2 inspections. Deemed savings may work, but radom inspections (a saple as SJal1 as
3 5% is statistcally valid) for prescriptive, and pre-inspections for everySPO,must occur
4 to ensure th the deemed savings asumptions on the existing and higher effciency
5 appliances and equipment coincide with actu program implementation.
6 The AGalsO recommends thtthe Commission limit incentive payments for
7 lightig to no more th 25% of a tota project, for both Prescriptive and SPO Programs.
8 EAl s SPOprogr adopts the Texas criteria of no incentives for measures with en~gy
9 usefu lives (EULs) of1ess than 10 years. The AG recommends that this criteria be
10 applied to SWEPCO's proposed SPO progr, and any other such energy effciency
11 offerings in Arkansa.
12 B. LivingWise for Schools Progra (Dcket No. 07-Ø75-TF
13 OG&E includes in its portolio offerng a proposed "Living Wise for Schools"
14 program tht the AG finds at best preintùêfor this initial Quick Sta cycle. The
15 copyrghted education program provides teachers and school childrn with a LivingWise
16 Kit that inludes a number of low-cost EE measures and a correspondig curcuum so
17 the teachers can educate grade school stdents on EE. Afer the stdents lear about EE,
18 theyal'e encourage to tae the Living Wise kit home and instal the mea'Ues with the
19 help of their family whom they educate as wëii.44
20 While the AG favors educating the next generation on the importce ofEE,
21 OG&E's own analysis demonstrates tht from a quick star basis, much greater savings
22 can be had, at much less cost, by educatig adults directly though OGE's proposed wak.
44 Docket No. 07-075-TF, Testimony of Kenneth R.Grat, Exhibit KRG-I, LivingWise SchoolsPrgrar,
pages 7-8.
32
1 thugh a,Qdts about the benets ofEE45, and by plaçipg low-cst EE meaures diretly
2. into thir ha
3 Th fol1Ø:wig tales e,oml)lieE from OGE'g respnse to the AG's 1st set ofdai
4 reque Question AG 1-4, shows th th Wal-Thugh Aud is fQre~aste to
5 contrbute to nely haf (46%) of the anua energy (KWh), and over one-thrd (36%) of
6 the peak deman kW, savings; where the LivigWise School Program's contrbution to
7 foreted anua energy and pea demd savigs lag far behind at 16% KWh an 4%
8 KW, saved. Th is so even tl both progrs ar of compable size ba on
9 pecentae of :pr6psé budgets to total portolio costs.
Analysis of Reltie Contrn t~ OOE's FOreteG POl Sa'vgs:
Livi Wl SchQl Pro ram and Walk~ Thr'Ou h En Audit
% of Proram to Total OGE POrtoflOKW Sa KW Sáveø TOO Costs
1e%4%8%
46%36%12%
10
11 The next tale shows that the net benefits of th W al~ Though Audit measured
12 by a TRC ratio of 6.54 far outweigh the net benefits of the LivingWise School Progr
13 with a TRC ratio of 1.16 indicatig that progra cost effectiveness is marginal.46
An~ly'Í of Relative Net eenefit to OGE frm the Total Resource Cos Perspece:
Uvin Wis School P um and Wal-Thraii h Ene Auit
Tota Benets Toti;l Cost Net Benefits TRC Ratio
$4,014 $37,213 $5,803 1.16
$3 855 $53 00 $29,855 6.54
of total benefits, totl co. and net beefi, are on a
Ne Prent Valu basis to OIptretl lidé benef of eiirg efficncy saing.
Th 1'1' th TRC rati, the Teter the benef ar relate to cost.
14
4S Children of coe could follow along and be educaed during walk-throug audits as wen.
46 The AG is not advocng that BE educaton and informaton progrs have to demonste cost~
effecveness.
33
1 For these reasons the AG request that the Commission deny OG&E's proposed
2 school progr and redirect the fuds elsewhere. Some could be used to expand the
3 "toolbox" of quick and easy low-cost EE measures given to cusoiners whetlcompleting
4 walk-though or self-adinistered electronic or paper audits.
5 IV. SPECIFIC COMMENTS ON INMDUAL UTILITY
6 PORTFOLIOS
7 The AG's comments on parcular programs or measurs, as they apply to some or
8 all of the applications, are found above in Section III. Section iv. provides additiQnal
9 comments based upon an individual utility's portolio of program.
lOA. EAI(Docket No. 07-oSS",TF)
11 EAI has retaned the COnsulti services of CLEAResult to mane itsport()lio of
12 EE programs. As the ArkansasEE market grows, the Commission will nee to COnsider
13 procedures to ensure that there is fair and ope competition amongst all energy service
14 providers. The process of soliciting independent third par proposals for varous aspets
15 of EE program plang, design, and implementation should be transparent. Ths may
16 include Commission Sta or staff consultants reviewig and evaluating utilty bid and
17 contrtig practice with third pares an subcontrtors.
18 EAl's proposed R.cier EECR intial filing (first 15 months of the fulI27inulth)
19 win not have a tre-up adjustment or cag cost. (See Item 9, Application.) Tne AQ
20 could find no reason or explantion for ths given the Testmony ofEAl Witness
21 Washington. True~up of over- or under-collection of revenues is an importt component
22 of the Commission's Order 16. The AG requests that the Commission require EAI to
23 tre-up its initial first 15-month filing.
34
5 EE savÍ!gs bae4 on review af the varous individqal progr desptions. The data
6 shows tht while thre is a somewhat reatively even split between foreaste anua
7 en aavi~s (M) ÍIom i:ident (42%) and commcialindus (49% - or 53%
8 if the citiescomiti~ prgr is include); EAls forec dema (MW) BE saviJi
9 ar by flifrom CII savings (71% to 82% if the citescowities progr is inçhlde).~
10 AG sugg~ts th with residential spce cooling loa contrbutill to s~ system
11 pe IQad and . :o:i;ner utility bils there shOtd be much 81eatr attntj.øi focus
12 on residential HVAC effciency in th next progra cycle.
13 tial and Sm.all CommercialHVAC Tuè-Up
Resl'l CLFs
Resintal AUEits
~slti HVAÇ Tune-up
TQtalR .
"S:Com. HVAG TooSi
Small Cil
Lar CI
Lar eii: SPOr~I~~ll..
MW
12,750:0
3,206.0
1,275.0
17,231.0
1,275.0
2,588.0
12,020.0
8,125.0
20,14$.0.
17%
4~71%
and small
14 Progr; th AGsuggess.t:t it would be usefu to knw th prposed mix betw
15 residential and coinerial HV AC tue-ups.
35
1 EAl also propses a demand response progr ~budgeted at $18,000 that is
2 designed to "enancethè cusomer's awarnes and understading ofEAl's existing DR
3 taffs and stmulate ádditional custmer parcipation. ,,47 Whíle demand response is an
4 impOrtt demand side management tool, it should not usur energ èffciency. Asnôted
5 in other AG filings in Docket No. 06-00-R, the AG recommends that Arkanståe a
6 comprehensive and integrted look at reducing peak and critical pea load. The AG
7 believes it vital that the state tae an integrated comprehenive look at ways to reduce
8 and maage residential crtical pe load, rather than separately consderig peak-
9 reducing strategies. We support an integrated program of technological solùtions to
10 address the peak load problem - not just demand respnse pricing. Pricing in and of
11 itself will not will solve our problems; we need common-sense engieering solutions to
12 reduce pea power needs as well.
13
14
B.SWEPCO (Docket No. 97-62- TF
SWEPCO's proposed initial set of progrs may comprise the best "cut to the ..
15 chase" - "quick sta" portfolio, asit appe to complement,.not duplìcatethe ABO's
16 EEA efforts. For instace, SWEPCO does not propose any additiona edUcation activities
17 or walk-though audts - the latter being poibly problematic until con~èr access to
18 and afordabilty of more costly but stil cost effectivé EE mealUes have had a chance to
19 develop in Arkansas.
20 Also, SWlPCOpropOses two rel point of sae program that as in~store
21 discl1ts would be available to any and all consumrs (thus increasing program
22 paricipaton), and by eliminati paper coupons, would minim utlity an retailer
23 administative costs. However, our ealier comments that the utilities should tae a
47 Docket No. 07-085-TF, Testimony of Kuris W. CastJebeny, Exhibit KWC-l, page 42.
36
1 sttegi~~t appråChtothe CFL lightigma:etapply to SWEPCO as welL. Fur,
2 as SWEPCO is, also inresed in incrgtle peetatien of higher effciency T5s an.
3 T8s floorents in largely commercial applications, the AG would hope that SWEPCO
4 would approach the market with savv to simultaeously miize the use of scarce
S ratepayer EE fu while maimzi manufactuer buy-down and retaers pot of sae
6 discounts.
7 SWEPCOalso pro.pose a. Staard Performance Offer prgr. The
8 Commission shod en th EM's an SWEPCO's .SPO progr ar reanay
9 monitore and evaluated to help inorm the next pr planning cycle.
10 Finaly, SWEPCO proposes an Emrgency Load Maement Standa Offer
11 Prog tar~ at large...coan indusalcusGlners seed by SWEPCO with
12 a miumpe eletrc demo of 750 kW or grea.48 Th AG caot suport the
13 SWEpcO progr with it propo prce ta of $360,0049, and "incentive pamen" of
14 $20.00 perkW-yrror collPÇ caity availaty, payable regardless ofwbeor.
15 not SWEPCO.ea for curilments. This bacoor ~'emergency load management"
16 progr is a thnly disgused reduction in pe demad capacity chaes for .large
17 commercial and industral customers --- that wil promote pe demand use, not peak
18 deman savi. If th Commission cheose to allow this progr, the progr plan
19 shotd be mooi:f so :t paymnts for contrcting caacity should be nommd, with
20 larer payments for acl interrption.
21 c.OG&E (Docket No. 07-075- TF
48 Docket No. 07-082-TF, Testimony of Bily G. Berny, Exhibit BOB-I, pages 1 - 4.49 Id., page 4, 20% of SWEPCQ's tota pørtlio budget,wi$322600 in "incetives".
37
1 As discused above, the AG is not supportve of the LiviWise for Schools..
2 Pro~:SQThsbudget of $83,729 would be bettr spnt on auditande~ng.;tn;å:t;tle
3 quick and easy low cost EE meas go more diectly to adults as the initial progra
4 offering.
5 OO&E is th only utility to include a stand-alone Motor Education and
6 Replacement Incentives program with a budget of$145,350. Motor replacements ca be
7 an importt soure of cost-effectve EE savigs. The Commission should ensure that
8 there is a reanable EM& V plan in place for ths progr so tht~~lesso:rs.leaed~~i:e
9 transferable to the other utilities for the next progr cycle.
10 D. Empire (Docket No. 07-076-TF)
11 Empire makes a reasonable intial EE program offeri of HV AC Tune-up and
12 C&I prescriptive rebates, with the lattr includig financial incentives for higher
13 effCiency motors. The AG sugges tht the Commssion encourge EAI to also inclúe
14 higher effCiency motors in its C&I presriptive incentive progra. Rebate levels and
15 savings asumptions for EAI an Empire should be compaed, with reasonable
16 explanation for major differences.
17 E. CenterPoint (Doket No. 07-081- TF)
18 As discussed in the pror section, the AG does not support CenterPoint's proposed
19 Energy Education Progr of $1 %,00 to residential and small commercia1custers in
20 addition to what the ABO plans to offer though the EEA.
21 As also discussed in the prior section, the AG does not support the CenterPoint,
22 A WG, and AOG's joint application for a gas-only commerCial and industrial audit
23 program. The AG recommends that the proposed fuds, as inicated below, be applied to
50 Docket
No. 07~075-TF, Tesmony of Kenneth R. Grat, Exhibit KRG-I, pae 7.
38
1 wher eleçc ~d na,tmalgas service area are common toC&Iprescriptve and sta
2 perfoi.ce offerprø~s.
3
4
5
6
7
8
9 The CenterPoint application also includes common adinistrtive cost of
10 $212,() not assignable to anyone program.
5 I Bas upon our understanding th all
11 utilty pr~ alr~ady have adinistve cost bult in, without any fuer
12 explantion in th CenterPoint applicaon, th AG dQenot support tIiis proP9se
i 3 expnditur.
14 F. AOG(DketNo.01-877-TF)
15 Th AG, for reasons outlin above, does not support AGG's proposed Energy
16 Education Progr charges of $67,880 to all cusomer over and above what the AB
17 plans to offer though the EEA. Furer1 as stated in Section III.D.9. and above regadII
18 CenterPoint, the AG does not support th joint gas utilities' commercial/industal natural
19 gas energy audit progr.
20 As discused in Section II.F., inclusion oflost revenues is completely
21 inropriate for recovery in ths program filing. The Rules specify that cost recovery is
22 limited to the incrementa costs of the EE progrs.52 In ruling on AOG's Petition for
51 Docket No. 07..81- TF, Application, Exhibit B.
52 APC Rules for Consrvation and Energy Effciency Progrs, Section 7.A and B.
39
1 Rehearg in Docket No. 06-004-:R regarding this issue, the Commission reiterates its
2 previous finding that "the appropriate stang point to evaluate inclusion
3 or decoupling mechanisms is in a rate cae. ,,53 Furer, and as noted in Order No. ,18 of
4 Docket No. 06-004-R, AOG has a pending rate cae before the Commssion (Docket No.
5 07-026-U) in which it has requeste a paal decoupling mechaism which wou1d
6 address any potential revenue shorts that might be attbuted to energy effciency
7 programs. AOG's budget for the A WP should be reduced by the amount oflost revenues
8 included and identified in the Tesmony of AOG Witness Fred Kirkwood in this Docket.
9 G. AWG (Docket No. 07-Ø78-TF)
10 As we have discussed above in Secton III. and regardin.g'Cen.tePoint ard AOG,
11 the AG is not supportive of AWG's indvìduaeducationprogra, nor the joint gas
12 utilities' eii natual gas energy audit progr.
13 V.
14
CONCLUSION
The AG appreciates the opportity to pariçipate i1lthsm()~lltQ~eftort of
15 creating, implementing, and operating energy effciency programs in Arkansas. The AG
16 urges the Commssion to adopt its recommendations, as stated in this report, and ths it
17 for its contiued commitment to and energy effciency.
53 Docket No. 06-004-R, Order No. 18, page 6
40
BEFORE THE
ARKNSAS PUBLIC SERVICE COMMISSION
IN THE MATTER OF A NOTICE OF INQUIRY
REGARING THE EXPANDED DEVELOPMENT
OF SUSTAIABLE ENERGY RESOURCES INARSAS
REPLY COMMNTS
to Order No.1
of
)
)
) DOCKET NO. 08-144U
)
THE ARSAS ATTORNEY GENERA
April 24, 200
1
TABLE OF CONTENTS
1. Intioduction..........................................................,.....................................................,..3
II. General Comments and Recommendations................... ................ ....... ................~;.:.. 4
III. Response to Investor Owed Utilities' Comments.................................................... 8
A. Lost Revenues................................................................................................... 8
B. Decoupling........................................................................................................8
C. Formula Rate Plan...........................................................................................9
D. Incentives..........................................................................................................9
E. Shared Savings ........................................................................ ....................... 10
F. EE in IRP ........... ......... ................ ........................................... ......................... 10
G. AM and Sma Grd....................................................................................... 11
H. Modification of Existig Rules.......... ...... ......... ................. ......... .................... 11
IV. Response to Comments of The Electrc Cooperatives of Arkanas ........................ 12
A. On Utility Incentives and AM ....................................................................... 12
B. Other Issues ..................................................................................................., 13
V. Conclusion.......... ...................................................................................... ............... 14
2
12 REPLY COMMENTS
3 to Order No.14 of
5 THE ARSAS ATTORNY GENERA
6 Docket No. 08-144U
7
8 I.. Introduction
9 The Attoty Gener ("the AG") appreciates ths opportty to offer the
1 0 followig R~ply Comments to the. Arkanas Publiç Service Commssion ("APSe")
11 Notice of Inqui (''NOI''), Docket No. 08-144U, Order No.1, daed October 14,2008.
12 As note in nur Initial Commepts dated December 15, 2008, we support the
13 estaJ:)ijent of the Aikans SU$ble Energ Resources Collaborative. As will be
14 noted in the AG'g simultaous fiing in this docket addressing the Energy Indepedenc
15 and Securty Act of 2007 ("EISA") and its amendment of Public Utility Reguatory
16 Policy Act of 1918 ("PURA") in response to Orr No.7, dated Febru 12,2009, the
17 AG support th development of afordable, cost-effective energy effciency program.
18 The AG enciiges th Coi:ssion tn kee two priciples at the forefront of ths NOr.
19 First reguators sliould ensure th the cost recovery, utility incetives and any for of
20 revenue decoupl associated with utity-implemented energy effciency progiam is
21 fa and reaonable and linked to the actu performance of the utility in meeti or
22 exceedin its goals for reducing energy us. Second, in order to be effective, ratepyers
23 should also be able to expt that they will see smaler utility bils if they consume less
24 energy.
25 The two sets of comments fied by the AG tody, Reply Comments to Order No.
26 1, addressin the Sustaable Energ Resoures ("SER") Collaborative, and Initial
27 Comment to Orer No.7, addressing the EISA amendments to PURA ar integral to
28 each other. Given this integral featu, both sets of comments are based on the critical
29 natue of the issues and matters being considered simlar. To the extent possible, the AG
30 has made every effort to minie repetions though cross referencing.
31
APSC Doket No. 08.L44.U
AG's Reply Comments to Order NO.1 3
1
2
3 II.General Comments and Recommendations
4 First and foremost, the AG fids that given the possible ratemakg natue of the
5 proposals suggested in varous Intial Comments and the EISA stadards, that foimal
6 ruemakng proceedings are in fact warted. The AG canot support any proposals
7 involving rate settg with the potential to increase consumer rates which have not been
8 fuly ex.amined in proceedings of record. When poorly execttedáßiji.mplemented
9 :without meanngful consumer protections. -- "removig the. disincentives" . and ''providing
1 0 incentives" to utilities for spendig ratepayer dollar on EE and SER - such rate settg
11 can result in shiftg shaeholder risk to consers, and raising prices durg period of
12 decling sales, all with no guantee that utilities will invest in effective energy
13 effciency . At worst, customers (1 ) could experience "paymore..save Inote" where the
14 more energy they save, the less bil savings they see due to decouplinglostrevenûe Fiders
15 and .. adjustments, and (2) see overalincreases to utility rates and monthy. bills from
16 overly rich additiona shareholder incentives, costly but ineffective utility EE progrs,
17 and continued utility investent and ongoing operatig expnses in more costly and
18 enviromnentaly har supply-side generation, transmission, and distrbution.
19 For these . reasonS the .AG respectfly requess tht the . ASlC reject outrght
20 iEntergy Arkasas,. Inc. 's("EAF')Xnitial;Conients, Section Vl."Rßcornendations. on
21Conductöf Collah(:rtive" for
22 a . mote . conversational approach to collaborative.. fon.s. .An ...open
23 d.s.cussiqn among Conissionersanij parcipants woula. be ..m.9re
24 conducive to learg about SER than having individuas make statements
25 to the Commssioners. Given the number of issues tht should be
26 addressed, it may be productive for the Commssion to schedule iii:ultipl.e
27 collaborative sessions, with each session dedicated to a related group of
28 topics. Limiting the topics for each session would allow formorein.,depth
29 aiscllsion durg.the timeallowed for tht session. 1
30
i APSC Docket No. 08-144-U, EAI's Initial Comments, p. 42.
APSC DøketNo. 08-144~U
AG,s Reply Comments to Order NO.1 4
1 Whe th AG is certnly SlPQrtve of a ful exchage of informtion and data
2 and reC(ignes the value pf worksops and oth tys of collaborave foru,2 th AG
3 C3iitions the APSC to no overlook the PQtential ratemag natue of ths ruemaking
4 and the r~lated f)nsideration of the EISA.3 For these reasons the AG sugess a two
5 ~ a.ppro~h to this docket. The fist phae ca consist of the "conv~æ;
6 appra.ch" requeste by EAL For th second pha,, th AG stongly recoen tht
7 th APSC cPnduct evidenti heags to consider the ful costs that would result f:
8 possible adoption of all Energy Effciency ("EE") and Sustable Energy Resource
9 ("S~R.") polici~ an reguations that would afect rates supported by sworn tesony
10 with. all aosts delineated uider oath.4 Such a process is vita to protect ratpayers from
11 an weil-intetion, put uianticipated couiterproductlve resuts.
12 Seçend, the AG is concered with the utilities' varus proPQsa regardig the
13 nee for fiial incentives before they can effectively paricipate in EE and SER The
14 AG Qiusses ths topic thoroughy in its Intial Comments to Orders No.7 an 8, filed
15 simultaeously in ths docket.
16 Third, the AG requests tht in any possible rues and reguations on utility EE
17 include the requirement that the sum tota cost to ratepayers of all utility EE disincentives
18 and incentives be included in the cost-effectiveness Total Resource Cost ("TRC") test
19 which would be us to evaluate the costs and be:afits of EE relative to the aVQided costs
20 of comparble suply-side generation, trsmission, and distrbution. This requieint is
21 the absolute mium ratepayer protetion which must be in place before th regulatry
22 removal of perceived disincentives and creation of additional incentives to encourge
23 utility sponsore energy effciency.
2 The AG reúGlly reuests the oportity to offer prentations in one or more of possible ñ.
collaborative for.
3 For a more comprehensive review and the AG's specific reommendations regarg the EISA stada,
plea refe to the AG's Initil Comments to Order NO.7 and 8, filed simultaeously in th doket.
4 Se also the AG's Initial Coments in Docket No. 08~137-U, wher the AG foun that therate
strct is not broken or requires radical reform. When consideg elements of inovave ratemak the
AG urged the Commission to adopt changes to ratemakg procedures only after heangs that enable a
detaled review of spific proposals for a speific utilty.
APSC Doket No. 08-144-U
AG's Reply Comments to Order No. i 5
1 Fourth, the AG believes tht such significat EE and SER public policy
2 envisioned via Docket No. 08-L44-U canot all pàss though the "eye of the needle"
3 private sector utiities. 5 These matters, combined with additional changing energy
4 effciency market conditions,6 provides an appropriate tie for the ASPC to look again at
5 these activities and address the most effcient delivery method, and consider agai the
6 AG's suggestion of an Independent Admstrtor.7 Timg is parcuarly apt in relation
7 to the $3.1 billon in federal fuds to the State of Arkasas to support existig and new
8 energy programs and initiatives.
9 Fifth, before any consideration of statewide policies regardin incentives or
10 removal of perceived disincentives, the AG suggests that now is a ver opporte time to
11 review the progress to date in the implementation of the Quick Sta EE Program. 8
12 Several utilities' initial comments note tht these program are behid schedule and
13 underprformg. The extent to which ths is due to utility "disincentives" and the lack of
14 additional "incentives," versus other utility, market, and nationa policy and reguatory
5 Much has changed since the passage of the National Energy Acton Plan ("NEAP") for EE - pUR.Ä
:EltêrgyIndependece and Securty Act of 2007 (EISA). AG's Initial Comments Docket No.08-144..U,
I)ecel1per 15, 2008, Attchment 2 "The Nationa Trend in Sharg Responsibilty and Credt forEE. andSER Beteen Utilty and Non-Utility Entities" is now becoming increasingly ''ititutionalii'' via
Amerca Recover and Reinvesen A.ct of 2009 in non-utilit entities such as the A.kaasiEner
Offce and the Weatherzation Program Collabnitive.
6 See for instace, AG Initial Comments Attchment 1: Moving Beyond Utility CFL Dominated Energy
Efficiency Portfolios.
7 See APSC Docket No. 06-004.R, Post-Workhop Comments of the AG, filed on March 24,2006, Section
IV. Experience of Oter Staes, pp. 7-9; APSC Docket No. 07-075-TF, Initil Tesony of Cytha
MitcheU on behalf of the AG, filed Augu 2, 2007, pp. 12-14; and APSC Docket No.08444-'U, AG's
Initial Comments to Order No.1, pp. 10-11, 22, 32-34, and Atthment 4, "Overvew ofEffcienøy
Models."
8 Report on the Quck Sta EE Prgrs are to be filed in company/progr specific rertg dockets
(DoCket Nos. 08-038-RP (Entergy), 08-039-RP (SWEPCO), 08-040-RP (Empire Distct), 08-049-RP
(üGi$E), 08-057-RP(A.OG), 08~058-RP i (CenterP9int), 08-059-RP(A WG), 08-06H~.P ...(Ar~sas
'N~tp~tioripr9gr), anaOS..0(i6~Rp(Ene~ EfXciency Arkasa~~ucatiOl1 Plo~an). '.. per Order No.
22 in Docket No. 06-004R, the effectveness rep9rts..ar~to~e. t"led in theseres;pctl0e.rePort~~aoqkets
and should include EM& V, energy savins, amounts spent on each progr and in total. See APSC Docket
No. 06.004R, Order No. 22, March 19,2009, p. 7. Such report were due on April 1,2009.
APSC Docket No. 08-144-U
AG's Reply Comments to Order NO.1 6
1 events soouJdcaefuly be considered in connectien with contiued program9 as well as
2 the broader scope of ths iriqui.
3 Sixth, the AG applauds the ASPC for its good work to date on takling the
4 electic - gas fuel competition issue. Per the AG's comments in Docket No. 08-137-U, we
5 have suported a form of decoupling eags from saes for gas utilities though the
6 Trial Bilin Determmant Adjustm.'Clans ("TBDAC"). 1QForele~ utilities,
7 decoupling has advantaes and disadvantages, although we are willin to consider it
8 fuer. Unless the risk reduction is specificaly accounted for, decoupling wil not
9 necessly resuJt in more energy effciency.
10 Seventh, the AG urges the Commission to take the next crtical steps in the
11 electr-e - gas fuel competition issue. We generally support the inÌtial comments of the
12 gas utilities 11 regarding the role of natu gas as a "bridge fuel" to a more comprehensve
13 SER,envinment. As stted by CenterPoint in its Initial Comments:
14 Increasing the diect us of natu gas in (residential an commercia)
15 .appli~ons ca potentiall.. mitiate .not ony the negative impts of16 global but also the tive . of a decling cuomer17 bas ànd g usae. It is public 12
18
19 EJth,.~ AG recommnds th the APSe oonsider soft or volURta EE an
20 SER goals for utiti~. Based on the Calforna experienet, had goals with possible
9 AP Doet No. 06R,Or No. 22,. Ma 19, 20, ext the deae for. tili of
coprehenive EE prog plan for progr yea 2010 and forward to July 1,200. Order No. 22 al
specified that th comprehensive progr plan ar to be filed in the originally asigned compay/prog
speific tarff dockets: Docket Nos. 07-075- TF (OG&E), 07~076- (Empire Distct), 07-077- TF (AOG), 07-
078-TF (AWG), 07-Q79-TF (Arkasas Weaerion Program), 07-081-TF (CenterPoint), 07-082-TF
(SWEPCO), 07-083- TF (Energy Effciency Arkanas Educaon Progr), 07-084-TF (Joint Ga Progr),
and 07~085- TF (Entegy).
10 In excb.e, th Attrney Geera gai thee coceions th were valuale. for rateeni - a
comnitent to energy effciency, a reduced ret on equity, an a reuced emphasis on fied cuser
oharges and decling block raes.
H See APSC Doket No. 08~I44U, AWG Initial Comments, pp. 2-3; and CenterPoint's Initial COnuts,
pp.6-7.
12 APSC Docket No. 08-144-U, CenterPoint Ener's Initi Comments, p. 6.
APSC Docket No. 08~144-U
AG's Reply Coments to Orer NO.1 7
1 downside penalies are at best ineffective and at worse result in going "broad" instead of
2 "deep".
13
3
4
5 Ill. RØspoDs.eto InvestoF Owed Utiiti' Comments
6
7
8
9
10
A. Lost Revenues
Simlar to the previous discussion durg the APSC's Consaton and Energy
Effciency Rulemag, Docket No. 06-004-R, may pares contiue to advocate the
11
12
13
14
15
16
17
18
19
20
21
22
23
necessity of lost revenue recovery in order to "remove the disincentive" of EE and
SER 14 Entergy suggests that a formula rate plan (discussed fuer below) could address
its need for "lost contribution to fied costs" or lost revenues. V arousenergy effciency
"lost revenue" and "Formula Rate Plan" do not change the underlying basis of the IODs'
business model of a stable or increasg saes base and recurg capit.intensive
investments.
15 By reducing a utiity's overal business risk without commensurate
adjustment in a utility's rate of retu to reflect reduced cost of capita, "lost revenues" or
"Formula Rate Plans" alone may actually provide long-term incentives to reuce EE
program effectiveness (parcularly in pe demand periods) to promote capita spending.
B. Decoupling
Both Empire Distrct and CenterPoint indicate that the Commssion should
consider decoupling as a way to elimate the sales incentive.16 The following is a brief
summar of the AG's discussion of decoupling in the Intial Commnts of Docket No.
.08-137-D.
13 For a llore comprehensive discussion of Caforna's expence with hard goaS;plea ~eetl
InitialC~ents.:to.O.derNo. 7 and 8, fied sìultaeously in ths docket p. 13, and A~~t4i p,L5.
14'Sltg APSC DOCk.etN6T08-144-U, CenterPoint's Inital Coinerts, p. 8.;9; OO&E'sÌttiCoåients, p.
6-7; SWEPCO's Initial COllllents, p. 17,19; and EAI's Initial Coinents, p. 21.
15 Seethe AG'sIntial Coinents to Orer NO.7 and 8, also filed today, Atthnent 2.
16 APC Docket No. 08-144-U, Ellpire Distrct's Intial Coinents, p. 3; and CeterPoint's Intial
COIDllents, p. 9.
APSC D9ketNo. 08-144-U
AG's Reply Coinents to Order NO.1
1 · The AG hassuworted decouplin eags from sales for gas utilities
2 thoug tie Tria Biling Determt Adjusnt Clause ("TBDAC"), but
3 sU€h a concession by the AG was. .accompaed ~y the impørt
4 ratepayer proteqons: (a) a. comwitment to EE; (b) a reduce retu on
5 equity; and (~). a. reduced emphais on fixed customer charg~ and
6 declinng block rates.
7 . The. AG is wiling to fuer C0ider decoupling for electrc utiities, but
8 the risk reducton must Ðe spifiælly accoUnted for and a commtment to
9 moreEE.
10
11 C. Formula Rate Plans
12 In keeping with its comments in Docket No. 08-137-U,17 EAl requests that th
13 Commission adopt a Formula Ra Plan ("FR") approach18 toprov:ide.inecJiansms for
14 utities to ea a ~ on SER investments and to rewad utiities for meetig or
15 ex~eeg goas based on achievable potenti identified in the IR. EAl representstiat
16 aprtly desied FRP can also address th ficial issue of lost contrbution to fied
17 cost. As the. AG stte in its Initial Com.ts mDoket No. 08-131-U; in repoi, to
18 EAJ's propsa; FRP ooes not encomage effciency, wi result in asyne.cal.outomes,
i 9 and will.oot negate the neeessity of rate cases.
19
20 D. lnce.öv~
21 The overhelmng majorty of utities' who fied Intial Comments support
22 shaeholder incentives in the form of a bonus or increaed retu on equity for EE and
23 SER investment.
20 Achieving utility indifference to successfu EE compard to supply-
24 side resomce mean EE intives must be substtial in light of th incentives utilties
17 APC Docket No. 08-L37-U, EAI's In Comments, Secton I1.C. Alative Regulatry
Metodologies, begining p. 1 l, and p. 16.
IS APSC DocketNo.0.8-l44-U, EA's Intial Comments, p. 20.
19 APSC Docket No. 08-137-U, AG's Initial Comments, Februar 3, 2009, p. 1 1, andp. 13.
20 APSC Doet No. 0.8 144U, Empïr Distct's :Ial Comments, p. 2; CentePoint's Initial Coents
p. 15; OG&E's Intial Coments, p. 6-&; AWG's Intial Coments, p. 7; SWEPCO's Inil Coments, p.
l7; and EA's Initial Comments, p. 23, 35.
APSC Docket No. 0.8- L44-U
AG's Reply Comments to Order No. 1 9
1 otherwse have to promote sales growt and build rate base. Withöut commensurte
2 adjustment in a utility's rate of retu to reflect reduced business risk, successfu EE
3 results in dueling incentives becaus a utiity's long-ter corprate position continues to
4 be enhanced by sales growt and increased rate base. By placing the admnistration of
5 EE programs with a non-utility pa, such as an independent administrator, some of
6 these concerns are alleviated.
7 As the AG has shown in both our Initial Comments to Order No.1, fied on
8 December 15, 2008, and th Initial Comments to Orders no. 7 an 8, filed today,
9 Arkasa should proceed cautiously regarding incentives and leafrom the California
10 experience. At ths time, the AG canot support any of the utility proposals regarding
11 incentives.
12 E. Shared Savings
13 Thee utilities suggest tht a "shared savigs" scheme would (1) prvide the
14 utility with an eas opportty consistent with tritiona supply-side investmnts,
15 'and (2) make the utilty indierent to investing on the demand side over the supply
16 side. 21 Shared savings schemes become prey to reliance on utility-reported energy
17 effciencý accomplishments, both the long-ru estimated kilowattur enegy and
18 kilowatt demand savigs and utility EE program cost. As detled in the AG's Initial
19 Comments to Order No.1, the Californa experience with EE shared savings incentive
20 mechanism has proven disastrous, 22 resultig in massively cumbersome and costly utilty
21 EE adminstrative strctues with an overelmng focus on spendig ratepayer fuds to
22 encouge short-lived EE measures such as CFLs.,,23,
23 F. EEinIR
24 EAl recommends that the EE'portolio be incorprated into the individua utity
25 IRP process. Whle the AG has recommended in the Initial Comments to Orders No.7
26 and 8 regardig the EISAIUR A stadads that the APSC adopt Stadad (16), tht
21 APSC Docket No. 08-144-U, AWG's Initial Comments, p. 7; EAI's Intial Comments, p. 22; and
SWEPCO's Initial Comments, p.17.
22 Attchment 1, p; 24, to the AG's Initial Comments to Ordes No.7 an 8 discus the CPUC's cuent
rulemaking process to undo its utilit EE shar savins mecanism incentive.
APSC Docket No. 08-144-U
AG's Reply Comments to Order No. i 10
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
reco~dationjs not the sae as EAl's recmiendtion herein The AG contemplates
tht the adoption of Stadad (16) wil place EE into the forefront of the resources to be
considerd during the utility IRP process, which is inormtionaJ oriy for the APSC. In
con~t, EA's proposa appears to advocte the broad basd incorporation of SER into
the IRP procss for the purses of obtaning incentives for the utlity.24 More
importtly, reguatory review of utility EE portolios via the individua utiity IRP
process would fuer dilute the Commssion's abilty to shape a cohesive and cost-
effective statewide approach to EE an SER that mimies reduncies and gaps in
program desi~ and i:arket strategy.
G. AM aø S:aart Grid
The AG addresses our concern with AMI and Sma Grd technologies in the
Intial Comients to Orders No. 7 and 8, filed simultaeously in ths docket.
H. MculifeatioB of Existi~g Rules
CenterPoint request that the Commssion consider revising its 2006 Conservation
an Energy Effciency Rules to (1) expressly pert utilities to implement lost revenue or
decouplin mechansms to permently remove the disincentives to e:aage in Demad
Side Management ("DSM") and other SER intiatives; (2) include provisions for utlity
shareholder incentives to invest in DSM and other SER initiatives tht are at leat on par
with existg utility incetives to inves in supply-side resours an intmcte; and
(3) encourage the increased diect us of natu gas for R&C applications. The AG
appreciates the markedly different gas utility concern on exacerbatig the ongoin
erosion in therm sales from gas to electrc fuel conversions thugh successfu gas utiity
energy effciency. The APSC has taen the necessa fi step in addressing ths isse
though the TBDAC. Furer modifications to the TBDAC, possible additional EE
incentives, and changes to the existig rues are prematue until overall policy diection is
decided and th is an asssment of how the Quick Sta EE Progra fared under the
existig rues.
24 APSC Docket No. 08-144U, EAI's Inital Comments, p. 19-20.
APSC Doket No. 08-144-U
AG's Reply Comments to Order No.1 11
1 IV. Response to Comments of The Electric Cooperaties of
2 Arkansas25
3 A. On Utilty Incenties and AM
4 The Co-ops' Initial Comments provide additiona support for the AG's opposition
5 to the wholesale granting of utilities with incentives for EE, as well as the AG's concer
6 about extensive investent in AM in the residential sector.26
7 Merely handig out ficial incetives to utilities to "incent" them to car out
8 EE is likely to cost ratepayers a great dea of money and not result in any savigs, as the
9 AG has pointed in the Initial Comments to Orders No.7 and 8, filed ths date, and in
10 Initial Comments to Order No.1, filed on December 15, 2008. Ths is largely because of
lIthe built-in motivation to increase saes and thoughput that is endemic to the investor-
12 owned utilities' ("IOUs") business modei.27 Unlike the IOUs, th Co-ops are owned by
13 their members, and do not therefore have the same resistace to encouring EE. Ths is
14 reflected in the signficant EE and SER programs tht the Co-ops have intituted over the
15 last several years, sumarzed on pages 1-3 of their Initial Comments. Ths is also
16 reflected in the Co-ops' respons the Commssion's Question 5, regardig the need for
17 incentives:
18 The Electrc Cooperatives do not requie any speial financial incentives
19 to develop SER. The Electc Cooperatives' only incentive is to provide
20 their members with a reliable electrical supply at the lowest reasnable
21 long-term cost.28
22 The AG has also expressed concern about extnsive investment in and
23 implementation of AM in the residential sector, fearg high cost without great
~itelnitial'0Q:mentswere. file on behalf of the seventeen reielectrccøQperai"\es/ai;I,d¡~.genei~;tk)D.
and transmission cooperative, Arkanas Elecc Coopeve Corporation, herein refer to coH.ectively as
"the CQ-QPS."
26 Discussed above in Section II.D., p. 9, and SecQn II.G, p. 11, as weH as in Intial Comments to Orders
No.7 and 8, filed this date, pp. 8-20, and Initial Comments to Order No.1, filed Deember 15,2008, pp.
21-23.
27 ¡d.
28 APSC Docket No. 08-144-U, Co-ops' Initil Co:mentsp.6,
APSC Docket No. 08- 144-U
AG's Reply Comments to Order No. 1
1 effecveness.29 The Co-ops, whose cusomers are maiy residential, provide supprt for
2 sketicism regarding AM. As they note, regarding thir customer base, the~ "broad pe
3 period will make achievig additional demad savings though the use of AMI very
4 diffcult."
30 They go on to cite studies whch apparently show cost of
5 additiona parcully compared to the additional benefit.
6 appreiate the Co-ops mang these studies available to the Commssion and to all pares.
7 B. Other Issues
8 In response to the Commssion's Question 4, the Co-ops recommend two chaes
9 to encourage EE and SER. The first is to implement changes in the Commission's Rules
10 and Regulations Governing Promotional Practices of Electric and Gas Public Utilities
11 ("Promotiona Pratice Rules"); they contend that the Promotional Practice Rules can
12 create a barer to maketing conservation and high effciency appliances, and desire to
13 elimiate the "requiement that a utility evaluate the economic impact of its conservation
14 progr on other utilties or compting fuels.,,32
15 The AG would encourage the Commssion to tae a fresh look at the Promotional
16 Practice Rules, in order to ascertin the extent to which they constitute a barer to EE
17 and SER. However, the AG would be loathe to remove the provisions prohibitig
18 program tht encourage fuel switchig, at least to the extent they encourge switchig to
19 electrcity from natu gas. That raises serious questions regarding overall energy
20 effciency, as explored above.
21 The Co-ops also advocate a new process for recovery of costs of EE, which
22 provides ''tt utilities receive advance reguatory assurces of contemporaneous cost
23 recovery.,,33 The AG has grave concerns about such a drastic chage in the reguatory
24 regie, as it could result in shifting vily all risk to ratepayers. Moreover, the Co-ops'
29 See the AG's Initial Comments to Orers NO.7 and 8, Secons V. and VI., pp. 14-20.
30 APSC Docket No. 08-144-U, Co-ops' Initial Comments, p. 4.
311d.
32 ld., pp. 5--.
33 APSe Docket No. 08-144-U, Co-ops' Initia Comments, p. 6.
APSC Docket No. 08-144-U
AG's Reply Comments to Order No.1
1
2
3
4
5
6
7
8
9
own extensive record in pursug investment in EE and SER seems to indicate such a
reguatory change is not necessar.
v. Cönêlusion
The Attorney General appreciates the opportty to be involved in the cónti'Uii
conversation regarding energy effciency and susable energy resourcés as the
Commssion contemplates policies that will affect the State ófÄikanšlis, our region, our
utilitY companies, and the individual ratepayers.
AlSq poçk~t 1"Çl. 08.. l44~P
AG'g Reply Comments to Order No. 1 14
CEll1FICATE OF SERVICE
I, Saah R. Tacer, de herby cefy tht on this 24th day of AprL, 2009, a tr
and corr copy of the abve R.eply Comnts to Or No. 1 were serv up ea
pu of *øord èy emal for fi clas maL.
APSC Doc No. OS-I44U
AG's Rely Com to Orde No. I is
.llD'OREARSAS PUBLIC SER
~;~ .......
ORY. i . .' '. ...it." . ~.lA..,f .- .
:iA1 \'. \\ i'. ø '09
. COMMISSION.. . ~ ~ 1.:D
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RBLY COMS
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EIA. AieRÙlDeRts to PUR A
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May 15,iH
TABLE OF CONTE
i.
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Stada (16): Inte
Sta (17): Rae Degn Modications to Promote Engy. Eff
Inveseis - EISA Sæ. 532.............................................................................................6
V.. Sta (18) and(19): Sin Grd ................................................................................ 7
VI. Reewle Poro and Enegy Efciency Stads............................................. 9
VI.. CQliion ..............................................._........................................_.._......................... .9
APSC Docet No. 08144U
Attey Gen's Reply Commen to Orde No.7 & 8 2
i
2
,
4
S
6
7
YCOMS
To ers No.7 md 8:
EIA Amentl fo PURPA
ofTU A.SA ATTOR: GE
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1 i be Aì;,s .~. fo of "m an ap ~ u i.e.~ ~ th ...
12 &lka1~ comp and politian mus be "for.~' Th Attorney ~ isal fe £~
13 ~ f?as we. A$ stted in pr co we agre th, in pacu1~ en
14 effci-.y am otkr typ of SER ar the sur W1y to stbili cuet utlity WI
is an -.. for tk wiUi lew an fi.o inme an th eldwiy aa c1~ ,. to ea
i, . uaeessty of lii~' utility sece. BE an SER al provi an"""'-":-"'_ ,," :. ," " ,'".' ''0' ;11 in envitay hal grnh ga (OHO) eø
18 ~ with cl1l ne steps in ths rul~ the AG
19 ~e~ .it th Conuon res its goal(s) in th am the ~n
20 ~~ ~ Orr No. i to enur th the Ar gree pare is ~ in ti
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";...l~.
:~~;_i:'_~'/li+':,'''';,~';;/0' -'/;è¡
As .ll of ~ p~ the AO Slge~ (bat fi and foremo Coinion
should Qrll do to wha th ruemakg cQUld me to th almos 3 mUllen Ar
ci~l ~~ lJ 11 on the eoiits ~cl frm utilties to ~
it ~ no be pi~t for rat*~. Th uti have be silet Qn ho th pkth
',"; "":,,:,;.,,, ',- .'( ", "; "':,;' ',V:" ';'/S,-',-):",': ,,-:'--: ,,\', -" ." ,;..,,: ',;-,' ". c-.,', ':,., C;,' " ';' "__/:' ,:,_' ;:,', _":"",.,, ':," '," "
of ~ed ci~ve sad iicØive will movate th to le go of ulow ha
engy effdeay frif' such as eFt that Wal:-Mart an o~ reile aty
~~r\lly ptO~~ an in~ go afr the more cotly an lter-tre 4rvers of
cey suy- intt such as spce coolin and hetig. IBtead th utiti'
paI foc ap to be on how, thugh rae deign moifcaon, utüiti~ ca
acev grer fied cost recove for Sm Grid and AMI ùients tht wi grw
shld ea. At th sae time, the utlities ar also gelly deming
AP Do No. 08144U
Atrney Geals Re Comments to Ord No.7&; 8 3
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reoval of "all disincentives" and additional sighficant fiancial incetives as a
preequisite to their parcipaton inthe ~'grn parade~' at all.
Thust the AG see ths rulemakg as runng th risk of becoming utility window
dreing for consumer to "save mere I pay more"; where though fixed cost recovery of
Smar Grid an AMI, utlities ca retely disconnt utility service without rega for
the health or safety of consers an reoty shut off ai conditioning units during
pe.-nsned hot and humd Arsas summers. Th Commisson ba alrey lai
the grunk lOge really in energy effciency savings The AG restflly
ur the Commssn to st tht, co~ts as it has all the nec regtlatory tools to
impve the process an ma it work.
II. General Comments
EAls Reply Comm to Or No. It in refe to innovative raemakng
stte that there is a "gener consen" in support of inovave ratemakng as th ro
to enurge effective SER implemtation. 1 It is misleaing to te th paes'
postions on innovative ratemakg as a "coensus." It is appaent fr a reiew of th
comments tht all of the utlities advocate large inntive as the vebicle for SER
implementation, bu a tre conen does not develop siply becus like-mind
paes all agr. A "cons" ca only be re if all paes. with divergent
interest come to an agrt. Tht is not the ca here.
The AG must clarfy CenterPoint and OG&E's reprentation tht the Amercan
Recovery an Reinveeat Act of 2009 ("AR ") conditions stted grats for enrg
effciency an reewable energ on state assue ot utity lost reveue an
addition shafold inctive.2 Th AR (1) doe not spcify rever of "los
revenue" and (2) speifies th utlity energy effcien be co effecve.J Th charman
i EA'sRepyCommntstoOrNo.l,p.2.
i CenrPoint's lntial PUR A Coents p.17; OG&B's Initi PURA Comme p.2.
i To receve Stimulus Act grnts for ener effciency ard consrvtion, states must asure the DOE tht
the \ViI emoy gener policis tJ
APS Docket No. 08 144U
Attey (jeneral's Reply Comments to Order No.7 & 8 4
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of the Hou Subeotte OD Enegy and Environment, Ed Markey, is on re
dts~ wi ~ ason tht any paicuar fonn of rag Ï$ æquired un th
Act
-n i~e doe not ma decli II sad Re. Ed), of th.e En . tll Co arma ~ ie ~ t1 ~uiæi" It do Bot ~re __ toimplemt. delPIÎßll he sad.
IB.. -.nt nll(lIa.ElmG R9!UR P1BBiBC- EIaSe ¡3A
EnterK's an SPP's commerts have convice us tht th may not he a.i
l~ for ~ Por one, tl AO ha iieve remmende ia~ IRP wi.thQt
~ ~ ~ sn. B~ ~ co~ly no tlat th cod be th ret of adm¡
sa .sta~ F~ atg th iitiiilR star i,ay ret in a nat
~~ve _oac tlt:ny ~ ~ Sl or lccemmda Aran iis SP:p's
C$ents ~ the pmecal ~tacle¡¡ of imp1eenti the ElSA st tl a~
hein 4~~ tht th ~ do not eonwnJate aetu ~ pro
Ol.otk ~ ~(l. 1f ~ ~ th AG ~ th.the Il ~4iis
~ß' .~.. ~ th ~on ha ~y i_en to ~ th poiçes
,i....ft . do an' .. .~~~~U ........ "... ... i:at~es"_ .. ___ ','" "_".'_ 'A _. _._ . .. _
· En utilit fimal inceive are aled wk heling eue: us imrg mo efl.ly
· Prvi tiy co re an tiely eaings op for utliie asdM wk coe~~le aml~1eenef sa ia a way that SUorenJæ ciØl.~ to us eii~ ni efltly;
· Implt ceain bug code by stte or lol g~ents and
· Pii th grn~ toward ñidù energ ef and reewle en progn.
" Kae Lin E&E repo. Stimulus dÐ not ree ldoouiøg' - Marey (Tue. Fcbi 24,26)
, 1Sntei's Init PURPA Coen~ p. 3, "curt standards ar ver brad~ wren ... do not Hcot
for diffce m th mae-up or ea state's reUt'.....
APSC Do No. 08144U
Attorn Oeral"s Rely Coments to Orers NO.1&: 8 s
2 IV. Standard (17): Rate Design Modifcations to Prol1lote Energy
3 Efficiençy Investments - EISA Sec. 532
4
5 In lQokig at the.dtsliøenti~ineetive isse. j.fis importttoasK:wner is all of
6 this money. for removmgthedisincentive .aidcretigadditionali_ntigoing to
7 come from? Who will be paymg for it? and Does increàsÌlig fixed êustomer costs
8 undenine eveing the Commission is trin to do here with BE and SER?
9 As Wal~note, not ev los kwhsales is becauseø.f~~ idlcatl'ute'lØ$t
10 sales to EE would be inccurt~ and would lead to increased~ but unecary an
1 1 Ursubs_tiated~ costs to rateyers.
12 The eÛ1n.t BDA is an explê. of a cOlluiner"ñiendlY way tò addrs lost
13 revenues.. ThegasttIiteS~ompiamthtthe BDA is notWôtkin.ghasto do with th~fact
14 dtattls pa winten.oneneeded it.A. the A(Jhas statêdiÎlÎts ptéviòti eommerltsin
is ths dOCket _in Docket No. 08..137-U, ths tye ofmêêlsm~ forgåcompiie,is
16 an apropriate way to addr th delig saes ise.
i 7 Everng tht the utities suggst an have agr to win co rateaYe
1 g ~iiey without any C(mmense demonson much les even any repreentaton tht
19 mermoney is the missng inent to ArkEE an.S:eR~. This $eds the wrg
20 pri signals of "save mor I pay more" which in tiunermrlcSmå1ettrfomt'On
21 and creat confg price signs to ratepayer whih in tu will undermine any lating
22 chage in consuer beavior.
23 The Utany of dem frm the utlities tegarding reova of diseatives and
24 creation of additiQnal incentives only sees to fuer undere th nety that any
25 cost (pogra co, reoval of dives inentives shd savings incntive
26 R.O~ etc.) IllllSf be incorpra into th cos..efectienevauation.öftt pro
27 before they ar implemented.
6 Wal-Ma's Reply Commets to Ord No, i. p. 9.
APSe Doket No. 08-144-U
Attorey Generl's Repy Com to Orde No.7&. 8 6
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Th ~ eeøpve' poion? th ther is no ne to adpt th ra degn
..4 ~ th ditioii be meer-own an inve"OWR,
__.. ..,._ ...:t:.&_~~'If~~~~
v. I1'Ml!ltiBl anø fi,)~, smart Grid
~ Aa ~ wi ~ CÐlJiDÎty Aet Ages ~
t'1+CAl'1 tJ Bl~ C~ ~ lW th~t th isnq ne to a. th.~
Gr In~ stlJ1~ ACM's apty nete th pøt lh ha to l~ùi
~ _ ii ~ of Sl telÐgy has nQt ye be illy ex
..ln ~ some ofth key co~mti tl ne.ti tQ be ma~ 8
iøl~ ca be ", eu it is. Th is not cost- whe a~ ClÐ1' æm ielisøaiy recl to th
to etomieay j th. co qf On thmse ... coul' usfu inf, a co-
~ bais. hia4~ Dxp¥e ke~ en moør may aloprvi us , aibìt Hl GiinlitY"ta If tl is
et1~ Ç(I' us, tl is a mu diper way to reac goalwith~1k eÇ qf~ t1tili æii.9 (emphm ori).
The Eleçe Cooptmnve uiore the importance of thoru~y evaluang the
p~Ql ~~ g,f aster $ Sllar Grd technolGg pror 19 adøptin of anysu~i.
~ Ae ~aki ~ f) ~'s ~aton t1t b~ore a~ Sm_, A,',' _''',' -,-",'(, -, -, '.' .. '.'.'''.J_,, ,", ,'.'d ,', ',-. .. '".. _ -- ,..... - , .. .. .. ..
(J iave reqWrets an U~ent of th potenti cos to indviual utitis is
ÌQ ~', 11 t~ lI inlude.81 ~t of the eo an bøeñts ~ rai~e,~ Th AG
ñier ~ ~~ with Empir's poûon th it ii certy in futu cø reve12
1 ne il Coews' 1iitl ~~ Com~ts Po 4.
· ACAANs Intil PURA Coents pp. 3, S.
9 ¡d..p.4.~.
to Th BJe Cotive' Initial PURPA Conts pp. 9- i G.
11 Empie's Initil PURA Coments, p. 3.
ti Em's Initial Pl)A Coments, 1'.3.
APS Do No 08-I44U
Att Ge's R.ep Comments to Order No. 7 & 8 7
1 before proeeding with Smar Grd progra as a "ca before th hor" persective.
2 Ou conces are only heightene by SWECO's. continued cal for contemporaeous
3 cost recver and higher depreciation rate for the exstg equipment tht Smar Grd
4 investments are replacing or supplementig. 13 Whle a rulemakg may be the most
5 appropriate coure of action once the Commsson sees fit to pr with Smar Grid
6 investmen'4 the AG see such action at ths tie as prematu. Th AG stongly
7 recommends that the intial inuir be limited to consderation of Sm Grid costs and
8 benefits, including thse outlned by the AG in its Initial PUR A Comments, and the
9 mentioned by other paies espcially ACAA and The Electrc Cooperative.
10 Regardig EArs coent on "conductg pilot projects to te the viabilty of
11 paricular Sma Grd technologies",14 the AG reques tht ther be a deteinaion of
12 ne for any pilot prgrs to be pr-approved by the Commission and subject to cerain
13 reportng and informtion gathg requremnts so that paries and th Comission ca
i 4 ases the wokabilty of th technology for the broader ratepayer popultin,
15 The AG's prviousy e.'\'Preed concern about reote disconnection were
16 reveaed to be realistc by the comments ofSWEPCO and OG&E:
17 Finlly. becaus AMI alows for reote connec an discnnec'4 AE
18 (SWEPCOl is able to imprve serce repons and worker saet.1s
19
20 OG&E is currntly condutig a small-sce AM sm meterng
21 demonstrtion pilot projec involving apprximately 660 smar mers in
22 Oklahoma City. The prjec is testing the opeion efectivenes of
23 remote contrl an discnnect servces, as well as the fuctionaity of În-
24 home energy mangeent device that work in conjuncton wi sm2S meters.16
26
27 Th America Asciation of Retid Persns l'AA") has concerns similar to
28 thse raed by the AG over the us of remote disonection fo thei consttuency.
29 Attachment 1 to these Reply Commen contans a fiing by AA at th Idao Public
30 Utilties Commission dur their codertion of an application by A vist Corpration
13 SWEPCO p. 6
14 EAl's Initial PURA Comments, p. 22
is S\VCO's Initial PURA Comments, p.7.
16 OO&£'S mitia PURA Coments, p.7.
APSC Docet No. 08-l44-U
Attorney Ge's R.eply Comments to Ordeis No.7 &8 8
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- a pilet ~ for remot diec an connts.
detl AAs ces for raye tht the AG shas reing the pøti
coue (If th use of rete dinnct.
VI. JlJ.ll',p~Ullio l:lJ~em Iffclll!a..
tl Cossion ha not se a _fe wh th AÇl an oter .. . .
ar to ~ t& th utilities' commnts regadin Renee P~io St,
~l$ Eicity Stadar~ and Ener Efeiency Resure Stda. 17 AG
re~ everl1 ~t wc said ÍJi its Intial PUR A Comments and lo forwd to
ii~~ te pn~ a,~ ~ ~ly 'W tf Comaissi~~es sush,
VIL CoiudUligtt
ap~ th allpel'ty to ~ in this inquiry. To~..
the AG ~ tb_ * CotmOJii ~ th BlAlURA si4a fer th
rexi ~ in its Initial Commen aa hen...' ....,':..../':....,.;,..,..:..........,.J...:.,:..,.:..,:/,/.'/.,.,:....,..:./.:..;'....: .:..,...":.:)..,.::.,.....:..,..::.'..,."..,.,"';;,,,.'" ...o.".;,.:.,"...:..::.... ;,':::.,.""':"(.'.,'/":"':::""""::'::','.,':'.(....:;...' ,,",-',,'0 .."
11 Or No. $ _Iy ieuat th th eletñ utlities proide a "be esate of 1J impa on CU
ra. am th utilit themlve of1e prols... D, p. 2.
AP Do No. Oi-i44-U
Attor Gel's Rey Commets to Orde No.7 8: S 9
~ATTACHMENT 1MaP tc T 1-86-29s728430BOl$Ge_ F.. 2.0~i4SuillOÐ 'f \-8-4758Meridfan, 10 aa642 ww.aarpoi/id
IN THE MATl OF TH )
APPLICATION OF' AVJA )CORPRATION FOR THE )
AUTORITY TO IMLE A PI )
PROGRA FOR REMOTE DISCOl\"NCT )AN RECONNCf )
BEFORE THE IDAHO PUBLIC UTIT COMMSSON
CASE. NO. A VU-l!HI7-Q9
:: t=F_ S=i Q ;cñis: ~ mmo N ('
0-0 en m0c: :-3:0: -c . r.E:r- ::CQÕ C,COMM OF AA IDAHO IN OPPOSTION re z.
TO THE APPLCATION OF AVIA CORPTIN FOR THE AUT
TO IMLE A PUiOT PRORA FOR
REMOTE DISONNCTS AN RECONNCTS
Octobe 25, 2007
Pu to Ord No. 3()37, AA Idao Slbmts th folwing .eø. inQpsito ti.ApcaoiofAvi Cøcnfo t1A~~I~taPilot Progr for Reote Disct and Re which.re th ~ver ~fce eupion ru AA is anou-pfime .~føt
peple age 50 and over. AÄ ha ney 180,00 me in th Sta of Idao.
AA Id oppo appova of1h Avist pilot an ur the Cosson to
deny it Avita's applicaon sh be denied be it is deíieiei: th compay ha
not provided suft infn:tion regaiag the pilot, su as co. to mtep.ln
addion, th proosa is poor publc policy an in risk tQ heath and saty.
L Avist's propoed pilt shoul be ded beuse t1c appleaa is det.
A. Avita bas provded no cost informatin.
Avi is prpo to pu and in apximay 60 dece whoh
ene iee diseiu an re No wher in it apJion do Avi
disclo th cos oftles dev or the co of iieton Neth dos Avi &tatliow
it in to rever th cots of th device whet it inte for sloWe to
co the cots of ths piot, or ifit wi as th Commis to reu raye to eove
th ei thgh raes) thugh a su to al cuto or th a. sue on
pilot paci Thes ar key quons wh sh not be left fo a futu da. For
th l'n alene th pilot propo shoul be den.
HEA I RNAÇI I CONHECTNG I GIV I ENOV1HG Er D. Ol, Pl'åe
W1IBa D. NoI, Chie Exiv Ofer
ATTACHMENT 1
each of thes re the pi shd be deed bas on a
TJen is Jl cuer eieàfi ~l øfihe pæ pit
2
ATTACHMENT 1
cos, theæore CUmers m th pilôt ar not li to 'knw th thit sece i bedied reotey and they wi not ha the oprtty to papern on the day of discnnon Ed ma æid dinnn notice
shoul inud anexn of th ne pr an inca wl oftl curnt
eustprte ar beg wa fo pi pats (wh ha notbe siga cu piot rnes wi be wa it '.
:e to hae in re th pilot. AviS1'S applicaon is deficient an
should be dened
n. Avita's proposed pnot shCNd be denied beus it is bad puWc policy~A.ilecn mayrae
Pas an ea discoon ofse ba imcaon be pu dollaran ce for th ut. Resch sh 1h du ti of ex we or hi
ener pñce wh bills in above nonaI, consumer often forgo nees suas fo an medcaon in or to pay bi Wh thy fal beh and ar disim
heath is put at nsk Althug Idaho ha a Wite discomection moorum ther ar no
proteons fo sur se ~y high teex ar no ofin
Idao. The imp of heat on heth is conserble. Dr.. enbeI
Asciat prfe of Socology "vety or av A
. Soci Autsy of Disar in C . year 1 ki Is m. thaU other natu dier incl ci
cobined. Dr. Klbeg rert th in an aver ther ar 0 het re death
in the USt compa to 200 for all ot na di In addion Klnenber
esat an avee of 1,500 "'ex de ft hea, wh he def as deabve 1b nor mo nu for a specfied peod oftÎ but not diattbut to he
Cut some pe of acun wbb ar slat fo diOluiecton ar notacy dinn beus th cu ma paym at th tie tbutty
employe arve at the prmis. Wit reote discetoll su pa wi not be
avle an thefoe mor houslds wi lose sece uner th enyTh Coon shd im of
'00 an1her puts th heth and
. lose esal sece .
B. The currnt consu prteon ni pl au importt roe ia maitag
heath aii saet. .
Coy in it ap is reue a wa fr a re .
th a utit emloye de to te se visi th.pr ind provide th euwi th opp to ma fu payen on a
acim As sf abve th ar soe pe of diec (it ha
3
A1TACHMENT 1
~ th do no ta.. øftlfahea
beeit
anTh
ofth ~ii fe If is ony "quck iesc ti to rc se
shuld "æ by a 'W oi1he xeon fe bee a prse vi is noloo
D. Th te ef the pW evluan ar sk DeUS it doe Be conser tle~.n~
ølsrJ,Ulilløt _ evtin is foused on th co aath ex wi tle pi tWpr ru tiins of re afmseiiuee coD.of1h pi grof1h mo noti~ oots de an" et. Obously, th pr
pi a compet pi of th pi
U. If apl'ed~ ~en coJUu mas be pJc: Oil tå pilt.
A'Yta~s apic is defi on its iàe. fij1s to ju th ne fo 1h pilot
aa is miss ke få realÐS to ~ pil an shou be dea How, if th
CoQi choo to move fo it shld do so ony af su~ th pü to anu of cøoa th ar in tb publ inte:
. Sbarlda sh be re to cove th co of1à piot
. CO$ of the me and hioi sh be di.
. Cr fo seeølig cume fe th piot sld be mo deted sadilos
4
ATTACHMENT 1
. Vulneble ~ jnud loii se, il an dilet anfallilics wi you c1 sh no be ined
All pi10t paci shuld ha teon.
The pllot shd us reve saling .
. R.econ fe shoul be wad an rennon shou oc withnone ho.ofpayA cumer ed pr shoul be i:ui. Noiies sh em th clon wi be dø rey
· Tel HO shul be do by a live Qp noaaIV T1 live
op sh be abe to ta elecc paymen an o£ bil papla· Me an evsh inlud im on cus aninude at lea th ar ided by AA above.
For~ otth re stted abve AA Idah rey re th
Comision de Avistts apon.
Subtt on the 2S11 day oföcbe)2007
~~1(~l!j,
s
CQ.TØICATE OF SERVICE
I. Sl Jl T_er~ ti heeb ee th en th 15th da ofMa, 200, a tr an
cw co of. ab~ R. e~ to Or No, 7 ai 3 we se upea
pw of ro ~y emil or &s elus ma.
Sa B. T~ke
AP Dock No. oil44U
Ati Ge.s IÐid Cots to Or No. 7 10
BEFORE THE
ARKSAS PUBLIC SERVICE COMMISSION
IN THE MATTER OF A NOTICE OF INQUIY
REGARING THE EX . ED DEVELOPMENT
OF SUSTAINABLE ENE Y RESOURCES INARSAS
) DOCKET NO. Q8 ~i44-U
)
)
)
INITIA COMMENTS
To Orders No.7 and 8:
EISA Amendments to PURP A
of
THE ARSAS ATTORNEY GENERA
April 24, 2009
1
TABLE OF CONTENTS
I. Introduction................................................................................................................4
II. General Comments......................................... ..............................................................5
II. Stadad (16): Integrated Resource Planing - EISA Sec. 532...............................~. 7
IV. Stadad (17): Rate Design Modifications to Promote Energy Effciency
Investments - EISA Sec. 532.............................................................,................................ 8
A. The California Approach .............. ................. .... ............ .............. ....... .............. 9
B. The Diffculties of Getting Incentives to Work.............................................. 12
C. Appropnateness of Adoption of Standad (17) .............................................. 14
V. Standard (18): Considerations of Smar Grid Investments - EISA Sec. 1307........ 14
VI. Stadard (19): Smart Grid Information - EISA Sec. 1307...................................... 17
VII. Renewable Portolio Stadards................................................................................ 20
VIII. Conclusion ............................................................................................................... 22
APSC Docket No. 08~i44-U
Attorney General's Initial Comments to Orders NO.7 & 8 2
INDEX OF ATTACHMENTS
Attachment 1
CPUC 2009 Rulemakng to Change its Energy Effciency
Risk-Rewar Incentive Mechanism ("RRM") .....................................................21
Attchment 2
"Critical Thinking on California IOU Energy Effciency
Performance Incentives from a Consumer Advocate
Perspective," by Wiliam B. Marcus, 18S Energy, Inc.
and Cynthia K. Mitchell, Energy Economics, Inc., presented
to American Council for an Energy Effciency Economy
(ACEEE) Summer Study on Energy Effciency in Buildings,
August 2006 ..........................................................................................................,25
APSC Doeket No. 08-144-U
Attorney General's Initial Comments to Orders No. 7 & 8 3
12 INITIA COMMNTS
3 To Orders No.7 and 8:
4 EISA Amendments to PUR A5 of
6 THE ARSAS ATTORNY GENERA7 Docket No. 08-144-U
8
9 I. Introduction
10 The Attorney General ("the AG") welcomes the Arkansas. P:Plic Service
11 Commission's ("APSC") Notice of Inquiry ("NOI"), Docket No.()8;,144~U, and the
12 questions raised by Order Nos. 7 and 8, dated Februar 12,2009 and.March6, 2009. The
13 AG supports the development of affordable, cost-effective energy effciency ("EE")
14 programs. The AG encourages the Commission to keep two principles at the forefront of
15 this NOI. First, regulators should ensure that the cost recovery, utilty incentives and any
16 form of revenue decoupling associated with utility-implemented energy efficiency
17 programs is fair and reasonable and linked to the actual performance of the utilty in
18 meeting or exceeding its goals for reducing energy use. Second, in order to be effective,
19 ratepayers should also be able to expect that they wil see smaller utilty bils if they
20 consume less energy.
21 The APSC's Order No.7 directs that all Parties simultaeously fie in this docket a
22 separate set of Initial Comments on the Public Utilties Regulatory Policies Act of 1978
23 ("PURP A") ratemaking stadards under the Energy Independence and Security Act of
24 2007 ("EISA"). Signed into law by President Bush on December 19,2007, EISA amends
25 PURP A, adding four new potential federal regulatory stadards, to Section 111 (d) of
26 PURPA pertining to:
27 (16) Integrated Resource Planing ("IRP");
28 (17) Rate Design Modifications to Promote Energy Effciency Investments,
29 (18) Consideration of Smar Grd Investments; and
30 (19) Smar Grid Information. i
i APSC Docket No. 08-144-U, Order No.8, March 6, 2009, corrected the numbering of the four EISA
stadards to be addressed herein. Furthermore, the Commission requested in Order No. 8 that all paries
use the corrected numbering in addressing the EISAIPUR A stadards.
APSC Docket No. 08-144-U
Attrney General's Initial Comments to Orders NO.7 & 8 4
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Order NQ. 7 also requests that Paries address whether formal rulemaking
prceeings needed for the adoption of any PUR A ratemang stdar4s (or
amendments to existing State Rules or Guidelines) and, if so, the parties should propose
specific language in the Intial Comments.
In addition to correçting the numbering of the EISA amendments to be addressed
herein, Order No.8 requested that "all jursdictional electrc public utilities, .ÎRcludig the
electric cooperatives, also provide on April 3, 20092 their best estimate of the impact on
cusomer rates and the utilities themselves of leading proposals to adopt federal
Renewable Portfolio Standards ('RPS'), Renewable Electricity Standards ('RES'), and
Energy Effciency Resource Stadars ('EERS,).,,3
Given the integral nature of the EISA amendments to PURPA per Order No.7,
and Commission's Arkansa Susinable Energ Resources ("SER") Collaborative per
Order No.1; the AG's Initial Comments herein to Order NO.7 and Reply Comments to
Order No.1, ar similar and overlap on many critical issues. To the extent possible, the
AG has tred to minimize unnecessa redundancy thrugh cross- referencing.
II. Geiieral Comments
First and foremost, as the AG sttes in its Reply Comments to Order No.1, filed
simultaeously, the possible ratemaking natu of the EISA warts formal l1lemaking
proceedings should the Commission ultimately find that it is appropriate for Arkasas to
adopt these federal stadas. For more detail regarding the AG's position on this issue,
please refer to the Reply Comments to Order NO.1. Any adoption of the EISA stadas
should be preceded by evidentiar hearngs to consider the full costs that would result
from possible adoption of EISA policies and regulations supportd by sworn testimony
with all costs delineated under oath.4
2 APC Docket No. 08-144~U, Order NO.9 modified the filing dat for these comments from April 3, 2009
to April 24, 2009.
3 APSCDocketNo. 08-144-U, Order No. 8, March 6,200, p. 2.
4 Per the AG's concurrent Reply Comments to Order NO.1 in this docket filed April 24, 2009, ths fiding
and recommendation is in stk contrast to Energy's suggestion for a more "converational approh to
collaborative foru". See also the AG's Intial Comments in Doket No. 08-137-U, where the AG found
APSC Doket No. 08~ 144U
Attrney General's Initial Comment to Orders No.7 & 8 5
1 Second, the A.G urges the A.PSC to continue to keep in mind that it is under no
2 federal obligation or directive to adopt regulations to "remove the disincentives~'and
3 "provide incentives" to utilties for the successful management of energy effciency. As
4 the EISA. stadards are evaluated, the AG agrees with the Commission that this state's
5 only obligation iš to consiCler the appropriateness of each standard. The AG highlights
6 what the A.PSC so aptly notes in Order No.7, that is:
7 Under PURA each State commission must make its own
8 independent determination on the PURPA stadards, taing into account
9 how the standards fit with its conditions, procedi.es, and prior actions.
10 PÚR.A. Sec. iii(a) states that 'each regulatory authority ... shall consider
11 each stadad' and then 'make a determination concerning whether or not
12 it is appropriate to implement such stadard.' Further, PURPA. also sttes
13 that 'nothing in this subsection prohibits any stte regulatory authority..
14 from making.any determination thatit isnotappropriateto..implement.any
15 such stndard.' Under Sec. 117(b) of the law, the State commission may
16 implement any standard, decline to implement any standard, or adopt
17 different or modified standads from those described in the. statute, If the
18 commission declines to adopt the stadard, it is required to state in writing
19 the reason for its decision and make that statement available to the public
20 (Sec. 1 11 (c)). The State commission may also tae into account prior21 determinations on the stadads. (Sec. 112(a)).
22 PURP A. specifies the procedurl requirements for consideration
23 and determination that State commissions are to follow (Section
24 111(b)(I)): .provide .a public hearing, after public notice,...and.inakea
25 determination in writing, based upon findings and .evidence presented in a
26 hearing and available to the public.5 (emphasis added.)
27
28
29 In other words, the PURPA.ISA. requires only that states engage in such
30 consideration, with the very real option of reaching a determination that the . EISA.
31 amendments to PURP A. are not appropriate for a state to implement. As detailed ¡nour
32 December 15, 2008 Initial Comments to Order No. 1 in this docket, and as will be
33 discussed in more detail in these Initial Comments and Reply Comments to Order No.7,
34 the A.G firmly believes that in order to protect the public interest~ it is imperative that the
that the ratemaking strctue is not broken or requires raical refori. (Doket No. 08-13'f-ü, AG's Initial
Comments, p. 34, lines 8-9.) When considerig elements of inoviuve ramakg,the AG.urgedthe
Commission to adopt changes to ratemakng procedures only aftr heangs that enable a detailed review
of specific proposas for a specific utilty. ld
5 APSC Docket No. 08-144-U, Order No. 7, Febru 12,2009, p. 5.
APSC Docket No. 08- 144-U
Attorney General's Initial Comments to Orders No.7&. 8 6
1 APSC's cons~aeraon of the EISA policies and regulations do not follow in CalifoI'ia's
2 footep, but. e.ncoure energy effciency in a maner that is fair and affordable for
3 raepyers.
4
5 llL Sta íl§):lDtegi:aW! Resurce Planll-:RisA *532
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Standa (16), Section 532 of EISA, states as follows: (16)
INTEGRATED RESOURCE PLANNG. - Each electric utilty shàll-
(A) integrate energy effciency resources into utilty, State, and regional
plans; ~? (B) adopt fOlicies establishing cost-effective energy effciencyas a prioE.ty re8W'ce. .
In consideration of this PUR A stadard, it is helpful to review the APSC's
cUl practice with regar4 resoure planing. On Janua 4, 2007, the APSC ented
its Resource Planing. Guidelines for Electric Utilties ("RP Guidelines") aspa of the
rulemaking docket, No. 06-028-R.7 Curently, each Arkansa utility is required to
formulate and submit a resource plan to the APSe for informational purses. The RP
Guidelines requir a number of elements 8 to be. included in the submitted report
including "(uJtilty efforts to encourage energy effciency, conservation, demand-side
managment, interrptible load, and price responsive demand.,,9 The current APSC
guidelines do not encompass the concept of energy effciency as fully as is contemplated
by the EISAIUR A stadad.
The AG recommends that the Commission adopt Standad 16 aad implement it by
re-opening the resoure planing guidelines rulemaking docket, Docket No. 06-028-R to
modify the existing rules to incorporate this stadard. The AG believes tht such a
modification to the existing guidelines wil be simple and should only require the
6 APSCDoketNo. 08-144-U, Order No. 7, Februar 12,2009, p. 2.
7 ht:lw;w~i.~æ§Q~ -. gu fQl eke; 06:2rR 1-7-67.pg
8 APSC:Rur Planning Guidelines for Elecc Utilities, Secton 4,1-4.8, pp. 2-3.
9 APSC R,esour Planing Guidelines for Electc Utilties, Section 4.3: Identifying and Cahrig
Supply an Demd RèSUfces, p. 2.
APSC Docket No. 08-144U
Attrney General's Initi Comments to Order NO.7 & 8 7
1 addition of another requirement to current Section 4 of the guidelines. 10 The
2 EISAfUR A stadard places appropriate emphasis on the importnce of energy
3 effciency. By placing EE into prominence in the resource planing process, the APSC
4 wil encourage electric utilties to consider it directly along side with other supply
5 alterntives. .The AG believes that Energy Effciency is the most inexpesive and easily
6 attinable supply resource. As such, a priority should be given to EE during a utilty's
7 resource planing process.
8
9 iv. Standard (17): Rate Design Modifications tOiProJ:Qte.Energy
10 Elñciency Investments - EISA Sec. 532
11
12 llYStadard( 1'0), states are req&irea toaddtess the applOpriatenes:s of".te.lE:sign
13 Modifications to Promote Energy Effciency lnvestmentš." The full section ispro:vided
14 below:
15 Stadard (17) RATE DESIGN MODIFICATION TO PROMOTE
16 ENERGY EFFICIENCY INSTMENTS.
17 (A) IN GENERAL. - The rates allowed to be charged by any electrc18 utilty shall.
19 (i) Align utility.incentives with the delivery.. of. cost-effe~tive
20 energy effciency; and
21 (ii) Promoteenelg effiêiency inves;tments.
22 (B) POLICY OPTIONS. - In complying with subparagap~.(A), eaclJ
23 State regulatory authority and each nonregulated utilty shall24 consider -
25 (i) Removing the thoughput incentiveard other regilatory
26 and management disincentives to energy effciency;
27 (ii) Providing utilty incentives for the successfulmanagernent28 of energy effciency prograns;
29 (iii) Including the impact on adoption of energy effciency as30 one of the goals of retail rate design, recognizing that
31 energy effciency must be balanced with other objectives;
10 See the AG's InitiaJiÇ;ommeJlts.to ()rder NO.1. This doe not ine~ that utiliti~.s~Qii~ be.the .S91e
provider ofEE and SER on state and regional levels. Rather, the utilitY IR process with BE as a prioritY
resurce is one aspe or component of sta and regonal EE and SER effort.. See AGIiiitia. Coinl1eîts.Attchment2: The National Trend in Sharg the ResponsibiltY and Credit for Ener~. ¥ffciencyand
SustanableResource Beteen UtilitY and Non-Utilit Entities, Atthment 3: SuccessfuEnergy
Effciency Market Trasformtions in the U.S, and Attchment 4: Oveiview of "Effciency Utilities"
Models.
APse Docket No, 08. i 44.U
Attrney General's Initial Comments to Orders No.7 & 8 8
1 (iv) Adopting rate design that encoure energy effciency for
2 each customer class;
3 (v) Allowing timely recovery of energy effciency-related4 costs; and
5 (vi) Offering home energy audits, offering demand response
6 progrms, publicizig the financial and environmental
7 benefits assoiated with makg home energy effciency
8 improvements; and educating homeowners about all
9 existig Federl and State incentives, including the
10 availabilty of low-cost loans, tht make energ effciency
11 improvements more afordable.11
12
13 The Attorney General has signficant concerns with implementig stadards
14 maing rate designs that give utilties "incentives." There are severa policies
15 suggested by Stadar (17) which the APSC is employing or considering. For example,
16 many of the. existing Quick Start EE programs meet the criteria of (B)(vi). In addition,
17 the Commssion is currntly considering a settlement in the OG&E rate application which
18 ,conta ,an ideal exaple of rate design that would accomplish the goal of Section
19 (B)(iV).12
20 But there is a grat distinction between the law allowing the APSC to consider
21 such measures on an individual basis and requiring the APSC to allow or mandate them.
22 The AG would like to offer some broad policy considertions regaring the
23 perceived "diincentjves" and the creation of "incentives" that are implied by Stadard
24 (17). The, policy considerations detaileØ herein have broad applicabilty to Arkasas and
25 the AG assert that we should proceed cautiously before implementing any of these
26 concepts so as not to saddle ratayers with ineffective and costly schemes.
27
28 A. The California Approach
29 Standard (17) is consistent with what the AG sees as a national trnd premised on
30 removing perceived utilty disincentives and the creation of additional utilty incentives,
31 to investing in ènergy efciency. This regulatory approach beame popular in the 1990's.
11 APSC Dok~t No. 08-144-U, Order No.7, Februar 12,209, pp. 2-3.
12 See APC Docket No. 08-103-U, Settlement Agreement (Joint Exhibit 1 to Joint Motn to Apprve
Agrement), Mach 16, 2009, pp. 5-6, Attent 2, p. 1 of 7; an Testimony of M Shawn McMury
Supportng the Propose Agreement, Marh 16,2009, p. 6.
APse Docket No. 08-144-U
Attrney Genera's Initial Comments to Orders No.7 & 8 9
1 As discussed in the AG's December 15, 2008 Initial Comments on Order NO.1 in this
2 docket, th~ EISA incorprates key aspects of the Deparent of Energy's 2006 National
3 Action Plan for Energy Effciency ("NAPEE"), 13 which is based in large part
4 on California's post-deregulation regulatory energy effciency regime. California's
5 approach is not working. To summar from our Initial Comments,14 and as wil be
6 discussed in furer detal in the body of these comments and our Reply Comments to
7 Order No. 1 in this docket:
8 . California electric utilties have been treading water for the last 2+ decades when
9 it comes to growirig verified and sustained EE savings over time.
10 . More than 70% of the California electrc investor-owned utilties' ("IOUs")
11
12
13
14
15
16
massive 2006-200S $2.2 bHlionEEport()liosavings åle diiêto medium..šlžed
screw-iii compact fluorescent lamps ("CFLs").TheCalifomiaICJUš' propošed
2009-2011 $4.2 bilion EE portolios are also CFL-based, at a time when Wal-
Mar, Home Depot, Costco, and other big box, home impl'ovemeiit,'and
membership national retailers have been very successful in increasìngi the
avaifábHity andaffordâbil't ôfCFLs.
17 . The California Public Utilties Commission ("CPUC") 2006 "Risk-Rewåld
18 Incentive Mechanism" ("RRM") linking utilty EE incentives to the CPUC
19 Energy Division's evaluation, measurement, and verification ("EM& V") has
20 resulted in the perverse incentive of EE cream skimming, lost opportnities, and
21 claims of utilty gaming the EM&V process; such that the CPUC has opened a
22 rulemaking to tae another look at the RRM. The AG provides a summar of
23 the CPUC's effort regarding the modification of the RRM in Attchment 1.
24
13 wwLeere.energ.gov/offce eere/nap.htm The Natona Acton Pla for Energy Effciency
("NAPEE") is a private-public initiative begu in the fall of 2005 to create a sustanable, aggessive
natonal commitment to energy effciency thugh the collaorave effort of gas and electc utilities,
utilty regulators, and other parer organizions. The goal of the NAPEE is to create a sustaable,
aggressive national commitment to energy effciency through gas and electc utilties, utility regulators,
and p¡ier organizatons.
14 See the AG's Initial Comments to OrderNo. 1 fied in this Doket on Deember 2009, pp. 4-8,13-14,
16- i 7 and atthments.
APSC Docket No. 08- 144-U
AttomeyGeneral's Initial Conuents to Orders No, 71k 8 10
1 Th Cl'UC is curently eng~ed in sigificat mid-coure reguatory adjustments
2 to in et.et tr and "tu the ship around:' Severa yea of re.gulatQry expementatin IS
3 have shown that transforming California's energy consumption lands to mee the
4 state's grenhoue gas ("GHG") emission reduction reuirements,16 and more generally
5 the goal of economic and envirOltal sustability, cant be achieved solely via
6 Caifornia's lODs, ànd may of the incentive concepts have resulted in wasted dollar, as
7 deicribe in more detail below. Whle the IODs play an importt role in achieving the
* sta's EE goals though utilty-administered EE progrs in their service
9 terrtories nrolems have arisen beo.ayse the BE goals for $e iou progr get tmed
10 êi. if they ate indistingushable from the stte's broader goals for EE. While progrs
11 taeting utilty customers ar imprtt, California's EE goals wil only be met if
12 ong()ing baselin EE (occurng wheter or not there àre utìltyprogr) and alreay-
13 succeS$ful EE maket effects and maket transformation 17 are also taen into
14 oonsideration. In order to aohieve maxmum effectiveness of utility-administed
15 progrs, utilty EE programs need to target BE opprtities that are separte from such
16 ongoingEE and BE market trsformation to-date. Thus, after a few year of tral and
is After st potiey makers estlishe in 2oø3 EE as "CA's fi loading order ree" (see 1st Ener
Atnn Plan httll~.çPU£.ca.ggv/publis~T/28715.btm,) the CPUC Ûim 204 ~ 2007 condute
a sees ofrulemakings to (1) assess the Californa's energ effciency potential, (2) adopt ener savi
goal for 1!ee eltec and natu ga roUs, (3) esblish the IOUs as the BE Progran Admisr ("PA")
with RM&V cpduc~ inependently by the CPUC's Energy Di.vision st and (4) adpt a sha net
benefi rapayer and sharholder risk - reward incentive mechanism. In 2005, the California mus filed
thdr 2.200 EE Portolios pursuat to the roles and reguatins adpt'e in the ab note
proins. www.£puc.ca.ggv/puc/en/elepc/energy+effciency/ .
16 Legiaton enaced in 2006, AB 32, reuires California to reduce its statewide OHO emissions to 1990
levels by 2620. This meas cuttng about 15% from 2008 emission levels. Executve Ordeer S-3..05
eslishes a long goal of 80% reucton in GHG relative to 1990 levels by 2050.See l 501 3 il 2 7and . f.
17 Thee Instue for Maet Transformaton, ww.imt.org offer the followig descrtion of maet
trformation: "Te ter 'maret transfonnation' encompas vaus stegies tòr the cron of
rmane self-susWn suceessof en -effcient 01' es in the lac. In cotr wi
trtiona ener effciency progr, which have on piecemeal proirent and instlaton of
effient technolog, market tranformaton offer a stategi approach to §lft entie makeet sec toward
a lPre efGciei Ðrpyct mi. Maet .trsfonntion progrs may focu on stmulti of consunr
cler as well as supplieer invaton. Especially in the United Sta, maet. trformaton has a
growig trac record of succeful synergy with energ codes and stadads. " (emphasis add'e)
APC DoketNQ. 08-144-U
Attrney G'neral's Initial Comments to Orers NO.7 & 8 11
1 error, the CPUC now recognizes that California's energy savings goals represent public
2 polièy objectives that wil be met only if they recognize the growing national trend of the
3 public- and private-sectors sharng the responsibilty and credit for EE.18
4
5 B. The Difculties of Gettg Incentives to Work
6 Performance incentives for IODs either end up being extremely expensive or do
7 not provide enough m()ney to overcome long-stading corprate incentives for growt~
8 thus becoming ineffective and costly windfalls for shaeholders. If performance
9 incentives were large enough be competitive with curent supply side incentives~ EE
10 delivered by utilities would be far more costly than EE delivered by other entities~ if not
11 more costly than supply side resources.19 It would be cheaper to change the EE progr
12 administrator than to give the utility incentives to offset the curent incentives for supply
13 resources.
14 Most if not all of the revenue true-up mechanisms and performance incentives
15 that are on the table today are familar arfacts from the first wave of regulatory-induced
16 resource planing. A plethora of regulatory carots and sticks have been tred with
17 minimal to negative results.2o A more strtegic view of incentives could foster a thriving
18 and diverse energy services market though robust competition in program design and
19 implementation. How?
20 First, recognize that incenting IODs for simply administering, EE porf()lios wil
21 not necessarly foster the best mix of portolios and progrs. Rewarding administrtion
22 wil beget more administration. The reward for perf()rming EE portolio administration
18 See Atthments 2-4 of the AG's Initi Comments to Order No.1 in this Docket: Atthment 2
National Trend in Sharg the Responsibili and Credit for Energy Efficiency and Sustable Resour'Ces
Beteen Utility and Non-Utilit Entities", Atthment 3 "Succssfu Energ Effciency Market
Transformations in the U.S.", and Attchment 4 "Overvew of "Effciency Utilities" Models".
19 See Attachment 2 to these Initial Comments, "Critical Thining on California IOU Energy Effciency
Performce Incetives from a Consumer Advocate's Perspective" by Wiliam B. Marcus, JBS Ener~, Inc.
an Cynthia K. Mitchell, Energy Ecnomics, Inc., presented to American Council for an Energy Effcient
Economy (ACEEE) Sumer Study on Energ Effciency in Buildings, August 2006.
20 For instace, history reflects that despit reeivg incentives, California utilties slashed EE progrs in
mid-1990s. The end result was that they creat a large porton of the 2000-2001 energy crisis by not
achieving 1800 MW of savings that they promised in the ealy 1990s as a rationale to stop the constrcton
of new generaon.
APSC Docket No. 08-144U
Attorney General's Initia Comments to Orders No.7 & 8
1 shoul be the abilty to retain and continue the fuction. Thus, the adnistrtive
2 assignent sAould be revisited from time to tie. This is more in keeping with regulatory
3 trtmat of iou administtion of equivalent supply side functions.
4 Send focus on re~ding programs that deliver verified and sustaned savins
5 with a focus on the critical end uses that drive supply-side procurement. Examples of
6 th ar: Residential and commercial space cooling load, which ar the drivers of
7 Masa' sumer system ~, with peak demand grwing more rapidly th energy
8 consumption.
9 Third, understad that a system of incentives corrlated directly to the
10 quatitative ~chievement of regulator prescribed MW and MWh energy tagets --
II without consideration of supply side prcurement critical load -- wil encourage effort
12 to 'mee tle goals' with less than solid.savings.
13 Fourth" recognize tht an incentive system with rewards based on maxmiing net
14 benefits (higher benefit/cost ratios) and penalties based on kilowatt hours not achieved
15 wil encourage the IOUs to "dig broad" but not "dig deep." Rather, it will give IOUs
16 incentives to:
17 · contiue to go afer the cheap and easy savings such as lighting (the highest
18 benefit/cost ratio);
19 · give lower priority to "lost opportnities" that must be achieved at specific
20 lost for decades even if they are less cost-effective than the cheapest
21 progrs witl more discretion in timing;
22 . develop progrs that look better on pape than savings delivered in the field
23 (e.g., refrigerator programs not geared by size that indirectly encourage
24 customers to use thir rebates to buy bigger refrigerators, thus offsetting some
25 of the efficiency gains)
26 . constrct portfolios based on energy savings that are not necessarily
27 correlated to the critical end uses that drve supply-side procurement.
28 Rewards base on net benefits have the additional highly undesirable effec of
29 . allowing utilty sharholders to profit from high fuel prices. With the same incentive
30 strcture, higher gas prices would raise shareholder incentives at the expense of
31 ratepayers even if the utilty expended no additional effort on EE.
APSC Docket No. 08-144-U
Attrney Geeral's Initial Comments to Orders NO.7 & 8 13
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Fifth, as discussed in the AG's Initial Comments to Order No.1 the Aransas
electric and natural. gas utilties suggested incentives are reveal a markedly different
corporate perspective. Simply put, the gas utilties are more fundaentally foci.sedon
keeping their businss head above waterthrough (l) compensation fOrcofltinued erosion
of sales · through EE. and . resultant revenues to cover fixed costs, and (2) someleveling. of
the fuel .. wars playing. field via regulatory consideration of natual... gas as the more
effcient.fuel source on a end use bais. On the other hand, the electrcinvestor..owned
utilties appear to be unable to push back from the buffet-laden table of possible IE and
SER incentives including: (1) "lost revenue" recovery even thoiigh(a) incremental sales
are . growing and (b) generation and trmission resources are relatively consained,
meaning that fixed costs are being covered and there is no risk of strandedinvestients;
(2) "lost revenue" and shareholder "incentives" for energy effciencysavings not
attbutable to electric utility EI programs; and (3) additionally rich shareholder
incentives in the form of concurent balancing accounts, rate basecapitalizatiòn,and
retum on equity kickers.
C. Appropriateness of Adoption of Standard (17)
The AG does not believe that the policy statements in Standard (17) would be in the best
interest of actual ratepayers. The goals are certainly worthwhile, butadòpting Stadard
(17) would appear to mandate incentives. To the AG, it is òbvious that proceeding down
atfincentive road that has not been fully veted òr contemplated can have burdensome bil
impacts on ratepayers and wil not result in tre savings, or lasting changes in consumer
behavior.
V. Stan.dard (18): Considerations of Smart Grid IiiveStnênts - EISA
Sec. 1307
The Energy Independence and Secunty Action ("ÐSA") of 2007 also requires
that states consider smar or advanced grid technologies based on a varety of factors
including total costs, cost-effectiveness, improved reliabilty, security, system
performance, and societal benefit, prior. to undertng investments in nonadvanced grid
APse Docket No. 08-144-U
Attorney General's Initial Comments to Orders NO.7&- 8 14
1 tehnologies.2! The EISA iuendments to PURPA establish a federal policy in favor of
2 sma meters, sm grid, and access to tie-basd prieing for all customers upon request.
3 EISA authorizes federal funding for smar meter and smar grd projects, but
4 eproprations of t1~ fuds is requIled
5 Sma Grd and related Advanoed Møtering Infrastrctue ("AM") benefits ar
6 tout as previding improved operation of distribution systems in terms ef reliabilit;
7 reduoed meter readiag expenses or "grd management," and new prcing optiolls such as
8 dynic retail or "real-tie pricing" to mange customer deman and reduce peak usae.
9 Dyic l'il prcing varies the price of electrcity as wholesale prices f1uetute over the
10 course of the day by relying on the "spat" or "day ahad" prices. The theory is tht
11 customers ea shift usa~ or reduce usage according to their "sensitivit te price." The
12 first key issue is whether Smar Grd/AMI systems are even cost-effective at all. An AM
13 system wil typicaiIy have some operaonal benefits (e.g., reducing meter readig costs,
14 improving biling accuracy, etc.) as weU as demand reponse benefits. However, the sum
15 of aU of the benefits must exceed the GOst by a heathy margin before one should proceed.
16 It is noteworty that as presented iiy California utilties, AM is not very cost-effective.
17 Southern Califoria Edison, San Diego Gas and Electrc and SoCal Gas all - using their
18 own estimates - found tht thre was a benefit-eost ratio of less than 1.1 - in other words
19 on a preset value basis, these systems might at best pay back 25 yea frm now - long
20 after the utilty executives who proposed the systems and the CPUC Commissioners who
21 eproved the systems had retired. Even worse, serious questions have been raised as to
22 the rea system cost-effectiveness. The amount of demand respanse that could be
23 oblRined was estid at unrealistically high levels; other systm benefits (such as
24 allege reductions in energy theft) were far above any previous estimates of the
25 underlying cost. One utilty even gave itself the benefit of saving the costs of a full-time
26 meter-reading force which it didn't have (it actually hired par-timers but claimed it
27 would have allegedly have had to switch to full-time in 7 years if it didn't have AMI).
28 This Commission needs to be very caeful to distinguish between real, solid,
29 concrete benefits and unsubstatiated hype (whether frm utilties, who have the
Zl APC Docket No. 08-144-U, Orer No. 7, February 12,200, p. 3.
APSC Docket No. 08-144-U
Attrney Generl's Initial Comments to Orders NO.7 & 8 15
1 incentive to increase rate base, or from vendors, who have incentives to increase sales).
2 Just because AMl is. currendy touted and high-tech does not mean thatalliapplioationsof
3 AMI are economicaUy sound. Many in fact are quite weak.
4 Turning to pricing issues associated with AMI, the AG support the concept of
5 Smar Grid I AMI systems, and real-time pricing, on a volwita and informational basis
6 only,. until more information is available about how these systems wil impact customers.
7 For residential customers, paricularly those on fixed income and the elderly, there..are
8 real issues as to whether these pricing options are the most effective way to reduce
9 system peak load and reduce generation supply prices. Related, is the extent to which
10 Sniar Grid I AMI systems are primarily a tool to aUow customers to reduce their
11 electricityt*U,.orjust shift usage to off"'peak hour to avoid higher critical peak prices.ii
12 Key impacts on low income customers and the elderly include:
13 . The costs of the new Smart Grd! AMI system that can. ru into. bilions for
14 large utilties and result in increased prices for aU customers.
15 . The abilty to use the Smar Grd I AMI system for remote disconnection for
16 nonpayment. This removes the ClUent customer protection afforded. by
17 p1'emise visits to. obtain payment, declare medical emergency, or.. detect
18 unsafe and dange1'ous conditons for very youn.g, old, or infihn.
19 . Use of Smart Grid li.A systems for possible "next step" prepayment
20 metering.
21 . The.extent to which Smar Grd I AMI systeis..also encourge mÖ1'e reliance
22 on volatile sJ't market prices based on wholesale markets.
23 · The abilty of residential customers, most particularly low income, to
24 meaningfully respond to Smart Grid I .AI system price signals via shifting
25 and I or overall reduction in usage.
26 While the criteria listed in Stadard (18) are valuable criteria by whichtoevåluate
27 smar grid investments, perhaps they do not reflect the full specwIr of considerations
28 that Arkansas 1'egulators must contemplate in reviewing the possibility of these
22 Load shifting from higher-use "peak" periods to "lower use' off-peak periods, should tae a far back seat
to overl peak load reduction and reduce energy use. Peak shifting / valley filling was the electrc utilty
industr's strtegic planing objective stnugJt in tbe19S0's promoted by tbe Electc P()wer Research
Institute (EPRI) as a way to justify the construction and operation of base load coal and nuclear generation.
APSC Docket No. OS-144.U
Attorney General's Initial Comments to Orders No.7 & S 16
1 investmnts for Arkansas ratepayers. As technology develops and as the smar grid trend
2 gains ground, Arkansas wil be provided with helpful examples of smar grid deployment
3 and operatioTl that can be then be used to more comprehensively evaluate not only the
4 fia.çial impact to ratepayers, but the behavior-changing potential of such technology. If
5 the APSe weie to adopt ths Stadad (17), the AG is concerned tht it might somehow
6 limt the considerations that should be made on behilf of Arkansas raepayers when it
7 comes time to spend their money OR smart grid investments.
8 The AG recommends that the APSe not adopt Stadard (18), but until more
9 information is available, proceed in its curent direction of evaluating utilty-specific
10 propo,sls at the time such is requested in either a general rate case or other tye of docket.
11 Such an approach wil provide the Commission with (1) flexibilty to consider compay-
12 spific issues in a given application, (2) provide additional time to gather informtion
13 about other states and other utilities' sma grd experiences, and (~) fully evaluat
14 ratepayer impact without boxing itslf into only the six criteria listed in Stadar (18).
15
16
17 VI. Staiifla¡d (12): Smart Grid Information - EISA Se~ 1307
18
19 Stadard (19) requires consideration of what types of informtion should be
20 available to an electrcity purhaser from an electricity provider and includes:
21 (i) PRlCES. - Purchasrs and other interested paries shall be
22 provided with information on:
23 (I) Time-based electricity prices in the wholesale electrcity24 market; and
25 (If) Time;.based electricity retail prices or rates that are26 available to the purchasers.
27 (ii) USAGE. - Purchasers shall be provided with the number of
28 electricity units, expressed in kwh, purhased by them.
29 (ii) INTERVALS AND PROJECTIONS. - Updtes of information on
30 prices and usage shall be offered on not less than a daily basis,
31 shall include hourly price and use information, where available,
32 and shall include a day-ahead projection of such price information33 to the extent available.
34 (iv) SOURCES. - Puhasers and other interested persoRs shall be
35 provided annually with written information on the sources of the
36 power provided by the utility, to the extent it can be determined, by
37 type of generation, including greenhouse gas emissions associated
APSC Docket No. 08-144U
Attorney General's Initial Comments to Orders No.7 & 8 17
1 wi each týpe of generation, for intervals durng which such
2 informatinn is availableona cost-effective basis.23
3
4 The AG does not recommend that the APSe adopt Stadard (19) because it is not
5 the most immediately cost-effective way to reduce peak usage or overall . energy'
6 consumption of residential customers. Once Smar Grd has been more comprehensively
7 deployed, information may be available that would change the realities described herein,
8 but at this time, although it sounds attactive, it is not the answer for residential customers.
9 R.esidential demand . response via Smar Grid. r AMI systems is closely aligned
10 with appliance usage, climate, and dèmographic(iricome) factors. 'lopencil out as cost
11 effective for residential customers, Smart Grid r AMI systems wil have to cut into. air
12 conditioning load, which is a hard thing to do given very low price elastidties.otlimited
13 ability to make usage changes. EssentiaUy, it aU depnds on whether residential
14 conSumers can voluntaily tu off their air conditioning systems on the hottst day of the
15 year when faced with paying 75 centsWh for air conditioning load.
16 While there is quite a bit of cost information available on Smart Grid / AMI
17 systems, curently there is no operational data from :fll scale deployment. This re.quires
18 in part a deierrination of how to track. benefits andassUlethat benefi~äreretìectèd in
19 the. form of lower rates. If the intent to assure long term lowest cost and highest
20 efficiency for essential electrcitý service, the AG strongly recommends that the APSe
21 evaluate energy effciency (paricularly in peak uses like air conditioners) and more
22 traditional low-cost, low-tech demand response (such as air conditioner cycling
23 progras) as ana1temative to Smart Grd / AMI systems.
24 Recognizing that reduction of peak and criticai . peak load shoy.ld be part of a
25 utilitý's portolio, the AG suggests that for the residential cIass the APSe consider what
26 is the long term cheapest or most cost effective way to achieve the objectives of peak and
27 critical peak reduction. In this respect, peak and critical peak energy effciency via high
28 effciency space cooling that is not dispatchable should not be viewed.as a negative, but
29 rather as a stabilzing value to reduce varabiltý in peak load requirements. The peak
30 load will not rise as much due to..a forecaSting error (more people moving into the hotter
23 APSC UocketNo. 08-144-U, Order No. 7, FehÎ" 12,2009, pp. 3-4.
APse uocket No. 08-144-U
Attorney General's Initial Comments to Orders No.7 & 8 18
1 coling regions of the state than ori~ly expected) or a hotter than normal summer if
2 effort ~ made to instll qiore effcient. air conditioners, Rather~ beuse th~ load per air
3 conditioner wil be less to provide the same level of cooling for end-users, peak and
4 criti~ peak eJ:ergy effciency wil serve to increase load stabilty and provide additional
$ load rep,cton and energy savins for more than a hadful of critical pea hours per yea.
6 Tle AG offrs th more traditiona110w-cost, low-tech demand respnse to Smar Grd /
7 AM system may be more cost effective. For instace, J3altirore Ga anel Electrc
8 ("13G&E'~) in; Maland ha been approved to expand an older Direct Load Contrl
9 progr for residentia customers with bil creits in retu for "cycling" central air
10 systeqi or heat p¡.s durng critical peak hours in sumer. 1308GE projects tht averae
11 bill redl;tion for ALL residetial custmers wil exceed costs within 1,-:3 years due to
12 reduced cost associated with pea load purchases.
13 The AG also suggests that the APSC look at residential demand response as a
14 tranition technology beause one gets less dem¡md response s~ivings as more energ
15 effciency is implemented. For instce, 1 kilowatt of DR from an existing air conditioner
16 pror to the inllation of a pro,rly sied.higheffciecy ai conditioni unit would be
17 reduce to 0.75 kW when a new and better unit is instlled. Over tie, at leat a porton
18 of eleman rense as a technology should decay out of a utility's poolio of
19 sustanable energ resources ("SER") as older, more ineffcient and often oversized air
20 conditioning units are replaced with higher effciency, properly-sized AC units, and the
21 th intety via increas insulation and high effciency widows are imprved in
22 homes and businsses.
23 The AG provides the following criteria for acceptale deman reponse prgr
24 for residential customers:
25 . Volunta
26 . Aimed at custmers with options to shif usage such as high usge reidetil
27 customers (centrl AlC), an lage commrcial and industral cusomers
28 . Rewards, not penalties for load shifting and load reduction
29 · Focus on Incentive Programs taeted to specific appliane interrptions (air
30 conditioning) for short time periods and customer credits
31 . Require modest investment in new communication and metering systems
APSC Docket No. 08-L44U
Attorney Gener's Initial Comments to Orders NO.7 & 8 19
1 . Emphasis of energy effciency programs first
2 . Support new building stadads and mandatory appliance effciency standards
3
4 For issues unelated to demand response, the AG is very concerned about the use
5 of AMI as a platform to increase the speed of customer disconnections for non-payment
6 and for promoting prepaid electrical service (the first of which have been proposed by
7 SWEPCO and both of which were originally proposed by other utiltiès such as Southe
8 California Edison. These issues have signficant policy implications and should be not be
9 dealt with in the context of a single AMI application. Finally, if automatic connection
10 and disconnection is pursued in context other than non-payment, the operational savings
11 should be applied to reduce the Connection (service estblishment) charge applicable to
12 customers who move among premises.
13
14 Vl. Renewable Portfolio Standards
15
16 In addition to correcting the numbeng of Order No.7, Order No. 8 requested
17 that "all jursdictional electric public utilties ... provide ... their best estimate of the
18 impact on custmer rates and the utilties themselves of leading proposals to adopt
19 federal Renewable Portolio Stadads ('RPS'), Renewable Electrcit Stadards
20 ('RES'), an Energy Effciency Resource Stadads ('EERS,).,,24 The AG offes the
21 following. limited Initial Comments regarding these policies from the rateyer
22 perspective. Given that the utilities have more information and can provide actual
23 estmates, we look forward to offering more thorough Reply Commnts.
24 As to the possibilty of federal renewable, electrcity, and energy effciency
25 stadards, the AG reiterates our earlier comments that the State of California's
26 experience with mandatory utilty-only EE goals (or stadards) has not resulted in
27 significant verified and sustained cost-effective ratepayer funded energy effciency. To
28 the extent the State of Arkan'Sas has a voice in the shaping the "Amrican Clea Energy
29 and Securty Act of 2009", the AG offers the following policy considerations.
24 APSC Docket
No. 08-144-U, Order No. 8, March 6, 2009, p. 2.
APSC Doket No. 08-144-U
Attrney Geerl's Initial Comments to Qiers NO.7 & 8
1
2
3
4
S
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
'Irt~ ;fed~l stda for renewables, energ eficiency, and/Qr electridty
should reflec the national trnd in sharing the responsibilty and. credit of energy and
slIstinle rE:urce beeen utility an non-utiity entities. Attchmiit 2 to the AG's
Initial. COnits. to Order No. 1 dated Deember 15, 2098 demonstate.s th in pa of
th CPl,tl other than Çalifomia, th states anci regions with active and succesful BE
an SER goaand progra,s do not rely or expct all activities to be ru though and by
the utiiitj~.. TIs. only wakes sense when one considers the fallacy of tlin~ to pas a
national suatinal¡le energy policy of this critical magitude though only the "eye of the
needle" utilities.
tf Stmdads or goals are in fact utility-only, the AG suggests that the bet
approach is per SWEPCO's Initial Comments to Order NO.1: have the goals be vohmta,
not mator.25 £AI's position tht madated BE performance tarets (or goals) would
entie utilltits to complete and tota control of the BE and SER process from "A to Z"
(planning, imlementation, and measurment and verification ("M&V")) is not a
workable approach for ratepayers.
If a utility has the resonsibilty
established thoug the IR process,
the full EE prcess from inception through education to
iglemaation. EAJ reoomicnends the utilities be given the respìlibilty
and accountabilty for providing EE/DR education progr to their
customers, which should be a component of a utilty's EE/DR portolio.26
(E~hasis added)
Second, shara. or possibly utility-only volunta EE and SER stadards or goals
should be free of penalties. The California e~peience has shown tht likelihood of
significant pealties for EE nonperformance does not produce positive regulatory results.
That is, when faced with a significant downward adjustent in forecasted savings after
the independent evaluator adjusted EE savings for progra yea 2006 and 2007, the CA
IOUs cried "foul"; protesting such afer-the-fact EE program M&V tre-ups as
"regulatory claw-back" blocking their abilty to book EE incentives as equivalent to
supply-side eaings. The only penalty utilties should face for EE and SER non-
2S APC Docket No. 08-144-U, SWECO's Initial Comments, p. 12.
26 APC Docket No. 08-144..U, EAr's Inital Comments, p. 34.
APSC Docket No. 08- 144-U
Attrney General's Initial Comments to Orders No.7 & 8 21
1 performance is the theat of diminished regulatory-sanctioned role or involvement in EE
2 and SER administrtion.
3 Third, under shared or possibly utility-only volunta EE and SER stdards or
4 goals, with no regulatory penalties, the upside incentive rewards do not have to be so
5 utilty rich. This benefits not just th ratepayer and society at large, but also the utility as
6 acorporate model often stil strggling under the pre-1974 energy crisis "grw and build"
7 capital intensive business paigm. Energy efficiency and sustainable energy reurces
8 are at their core about achieving increased economic productivity by ingenious
9 application of novel technologies and business practices that save both money and
10 resources. It is time for the U.S. utilty industr to either voluntaly hop on board or be
11 left behind.
12 AG wil offer more specific comments regarding these policies in the
13 EISAIURPA Reply Comments on May 15, 2009 after reviewing the utilties' specific
14 estimates.
15
16 VIlle Conclusion
17
18 The Attorney General appreciates the opportity to offer reconindations
19
20 the AG recommends that the APSC adopt Standar (16) regarc:ing Intergrted Resource
21 Plans, but decline to adopt Stadards (17), (18), and (19), as inappropriate for Arkansas.
22 The AG looks forward to providing additional commenta on these issues in the
23 Reply Comments due on May 15,2009.27
27 APSC Doket No. OS-I44-V, Order No.9, Mach 24,2009, extended the deaine for Reply Comnents
until May 15,2009.
APSC Docket No. OS-144-V
Attorney General's Initial Comments to Orders NO.7 & S
Attchment 1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
Attchment 1:
CPUC 2009 Rulea, .
Risk-Rewrd In
to Change its Energ Efñiency
Meelldišm (":i~iuM")
As also note in the AO's December 15,2008 Initial Comments to Order NO.1 in
this docket, California energy policy makers and utility regulators are also regnizing
that the state's 2006 iou sharholder incentive mechanism is not having the desire
effects. In Janua 200, the CPUC launched a rulemakg to in par rethink its currnt
utility incentive mechanism that is based on a sharing between ratepayers and
shaeholder of the utilty EE net beefits.28 The California incentive mechanism has
unfortately not encouraged the California utilties to go after comprehensive "dep and
broad" long-lived EE savings equivalent on measure and verified basis to "steel in the
ground" generation, transmission, and distribution infrastture. Instead, the California
incentive mechaism has resulted in massively cumbersome and costly utilty EE
administrtive strctures29 with an overhelming focus on spending ratepayer funds to
encoura~e short-lived BE measures such as CFLs.30
On April 1, 2009, the CPUC's Energy Division released a White Paper entitled
"Propnsed Energy Effciency Risk-Rewad Incentive Mechanism and EM&V
Activities.,,31 The White Paper intrduces a frmework for considering modifications to
the energy effciency risk-reward incentive mechanism ("RRM") and the evaluation,
measurement, and verification ("EM& V") activities that are curently used to measur
performance and determine incentive awards or penaties for the investor owned utilties.
The California Public Utilties Commission ("CPUC") has determined that improvements
28!W:/ldos.ep,çagQvIPUC/energ/Effeienø:lE+anV lOi1 1 17 Verificatin+RpP2litm
29 In Caifornia at least, utility EE prog overhea, genera, ard adinistrtÌVe cost may well'be cotig
upwards of fift cents of every ratepayer dollar.
30 See tle Initial Comment of the AG to Orer No. 1 in this docket Attchment 1: Moving Beyond Utiity
CFL Dominate EE Portolios, Deembe 15, 2008.
31 See CPUC Energ Division White Paper ..Prposed Energy Effciency Risk-R.eward Incentive
Mechanm and EM& V Activities", Apnl 1, 2009, htt://ww.cpuc.ca.govlNrdonlyresA51D61E2-
DF03-4D9B-BFDB-
2211 0963816SIOlPropoednergyEffciencyRikRewadIcentiveMechandEM _ V Activities.pdf.
APse Docket No. 08-144U
Attrney Gener's Initi Comments to Orders NO.7 & 8
Atthm~ 1 23
Attchment 1
1 to the incentive mechanism are necessáiriorder to make the earings process more
2 transparent, streamlined, and less controversial, while also encouraging the rous to
3 achieve the Commissi~l1'scoreenergyeffciencYP9Hcygoais)2
4 The CPUC Energy Division's concerns as detailed in the White Paper regarding the
5 existing mechanism are:
6 1. The incentive mechanism acts to discourage the pursuit of strategic initiatives and
7 market tranformation activities envisioned by the California Energy Efficiency
8 Strategic Plan.
9 2. The incentive mechanism acts to discourage the pursuit of all cost effective
10 energy effciency.
11 3. Implementation of the incentive mechanism consumes an inordinate amount of
12 CPUC, IOU, and consulting resources.
13 4. The incentive mechanism has focused attention on the details of the. incentive
14 calculation rather than on examining the quaity and performance of programs and
15 producing accurte estimates of energy and environmental impacts.
16 5. The incentive mechanism relies upon achievement of energy savings m
17 relåtionship to adopted savings goals which are not updated in a manner similar to
18 and on the same schedûleas the parameters used to estimatesa;vings andjiidge
19 accomplishments, leading to complaints regarding the fairness of the mechanism.
20
21 The CPUC Energy Division proposes that modifications to th existing incentive
22 mechanism and EM&V be guided by the following criteria:
23 1. Effective and Strategic - The mechanism must be focused on the Commission's
24 ene~gy effçiency policy goals.
25 2. lleasiJ.le.. TheCPUC must be able to design and impleme,nt tle . I¡:çentlve
26 mechanism expeitiously with curent staffmg.
32 See Attchment I, pg. 56: Recent preliminar independent analysis oftbe Califomia utilties' 2006 and
2007 reportd EE accomplishments indicate the utilities' claimed savings to be off or high by a significant
amount.
APSC Docket No. 08-144-U
Attorney Genera's Initial Comments to Orders NO.7 & 8
Atthment 1 24
Attchment 1
1 3. Timel and Noii-Contentious - Incentive payments or penalties should be
2 quaified and processed in a reasonable time frame and be acceptable to all
3 steholders.
4 4. Fair aDd Cost-Effeiet - The mechanism should provide resoable opportit
5 to ut~ities for successful management while protectig against
6 unra.nable costs and pnorly managed programs.
7 5. Simple and Transparent - The mechanism should be simple and understandable.
8 6. TeeltnnI integrity mechanism should maintain the technicl integrity of
9 Æl11 EM&V researh" savings estimates, and energy effciency forests.
10
11 Below are the compnnents that Energy Division believes are required for an
12 effective incentive mechanism that has the potential of producing the results desired by
13 the Commission:
14 1. Deeoopling of Certain EM& V Activities from Incentive Earnings - The
15 incentive mechanism should segregate the measurement of savings and CQst-
16 effectiveness frm eaings in order to remove disincentives to mang productive
17 use of the information flowing from the EM& V work, and to encourage the
18 pursuit of all of the CPUC's energy effciency policy goals. (emphais added).
19 2. Awarding Bas Earnings and Performance Bonuses - Instead of meeting
20 energy savings thesholds, the utilties should be provided an opportnity to
21 qualify for a minimum base level of earings for managing the energy effciency
22 portfolio in a prudent manner, with the potential to ear "bonus" earnings based
23 on the perormance of selecte programs.
24 3. Cost-Effeetiveness Requirements - The existing cost-effectiveness test should
25 continue to be used as à portolio-level minimum theshold screening mechansm,
26 should not be used as the primar tool to calculate utilty incentives, and/or should
27 be thoroughly re-exained to determine their applicabilty in valuing the full
28 range of benefits flowing from energy effciency activities.
29 4. Rewarding Desirable Market Transformation Activites - The incentive
30 mechanism should be designed to encourage market transformation by shifting
31 evaluation resources towards carefully designed pedormance measures.
APSC Docket No. 08-144-U
Attorney General's Initial Comments to Orders NO.7&. 8
Attaehnieit 1 25
Attchment 1
1 5: RewardingCllstom.er Investments in Energ Eftciênêy:. The incentive
2 mechanism shøuld rewardtlieutilties forctesi:giing prograns'tat encourage
3 customer investments in energy effciency.
4 6. Savings Goals - The CPUC should continue to adopt energy efficiency savi:ngs
5 goals as an input for 'te long-term procurement proceeding and other purposes
6 but accomplishment of savings goals should not be a sole deteiininant of iou
7 performance.
8 COQ.sumption Targets ... Sa.vings . goals should .be supplemented wi't
9 consumpti:ontargets fo'l ttackingportolio perthrmance relative toE3HGemissions
10 reduction goals.
11
APse Docket No. 08-144-U
Attorney General's Initial Comments to Orders NO.7 & 8
Attachment 1 26
Attchment 2
Critieal TltiRkig 6. California LOU Eøergy Effieieøcy Pedormaø.ce
Iiintivesfrom a Consumer Advocate's Perspeive
William B. Marciis, JBS energ, Inc.
Cynthui K. MiJell, Energy Economis, Inc.
prted to American Council for an Energ Effcient Economy (ACEEE) Summer
Study on Energ Effcien.ey iD Buildings
Asilomar Conference Center, Pacifc Grove, Califomia
August, 2006
APSC Doket No. 08-144-U
Attorney General's Initia Comments to Orders NO.7 & 8
Atthment 2 27
Attchment 2
Critical Thinking on California iou Energy Efficiency Performance
Incentives from a Consumer Advocate's Perspective
Willam B. Marcus, JBS Energy, Inc.
Cynthia K. Mitchell, Energy Economics, Inc.
ABSTRACT
As Integrated Resource Planning (IRP) is experiencing a regulatory renaissance,
recast as resource procurement or portfolio management, investor-owned utilìtes (IOU)
are in large part being given regulatory authority to administer multi-milion to billon
dølfar annual ratêpfier-fu1ted.energy.. effciency (EE).lJrtfølios: While . all parties
recognize there is an inherent financialconf/ict of interest between sellng and saving
energy, parties difr on the extent to which regulatory mechanisms can align IOU and
customer interests.
Based on their decades of experience with IRP, IOU-administered EE, and
regulatory EE performance incentives both in California and on the national level, the
authors discuss how the various financial and non-.nancial incentives for utilties to
promote increased sales cannot be wholly eliminated, and even if signifcantly reduced,
that reduction comes at a very high price.
The authors explain why they believe the most fundamental way to motivate
lOUs to procure "least cost best fit" (LCBF)il energy effciency is to stop making
supply~side investments so attactive by more closely aligning the utilties' authorized
returns with the cost of equity capita observed outside the regulatory arena.
If EE performance incentives are adopted for lOUs, the authors describe how to
design incentives strategically. Such incentives could promote a diverse energy services
market through robust competition in progrm design and implementation and effciency
savings that also have significant peak demand impacts.
IOUs Have Significat Business and Regulatory Incentives to Promote Higher
Electrcity Use
Utilty Business Model
The utility consumer advocacy movement that began in the late seventies and
continues today is in large par focused on reducing the industr's capital requirements
by moderating the need for and cost of electrc plant and equipment through energy
efficiency. Even so, the utilty industry maintains a high propensity for capital due to
ongoing load growt and replacement and refubishment of existing generation,
transmission, and distribution (GTD) infrastructue. Even with aggressive energy
APSC Docket No. 08-144-U
Attorney General's Initial Comments to Orders NO.7 & S
Attchment 2 28
Attchment 2
effcieny (and other distributed resources), the natue of the business is, and wil in large
pa renw, pmduction and delivery of eleccity by means of capital-intensive
facilties.
Cotnd over capita a means of corprate survival and grwt is not just
deirble, but an utter necessity for electic utilties. To attact capital, investr-owned
utiities must have an 0'verarhigoorprate objøoive to incre sl'eholder value
(SV) by increaing stock priets (SF) and dividends (given that utilities tyically payout
more dividends than most other businesses) (DV)) Raising SP and DV in tum mean
maximizing eargs or net income (NI) and increasing the growt in earings per sha
(ES). ln tum, NI = Revenues minus expenses (Ex), with revenues based on the price (P)
of electricity and the level of kilowatt hour sales (S).
~erviei of Utii~ Rate Setting
The elec:tcity price includes:
· Expenses (EX) including the cost of operation including fuel and O&M
(variable costs), deprciation expense associated wi existing plant
(which beomes par of the utilty's cash flow); payroll and propert taes;
and income taxes.m
· An allowed Rate of retu (ROR) on utilty's invested capital or "rate
bae" (RB). RB largely consists of the undepreciated portion of the
original and legitimate cost of plant and equipment. il The ROR includes
debt interest, prefer stock dividends, and a return on equity
(ROE). When rates are set, NI is presumed equal to the ROE allowance,
but it ca diverge from this point between rate cases.
Exaining these components more closely, under conventional
regulation, betweènrate cases, an increase in kilowatt hour sales is likely to translate into
higher amounts of NI, as the varable cost of sales is often less than the revenue
reeived. W This phenomenon is paricularly tre for the prepondelàce of utilties that
have fuel adjustment charges that automatically tre up rates for changes in fuel and
purchase power costs. In a utilty rate case itself, NI is generally increasd by increasing
either RB or ROE.il
APSC Docket No. 08-144-U
Attorney Gener's Initial Comments to Orders No.7 & 8
Attchment 2 29
Attchment 2
An increase in earings or net income (NI), allows growt in earings per share
(ES) if stock does not need to be sold in large quantities to finance new constctIon
because earnings can be retained.il Increasing earings per share (which in turn su.pport
inCreà$ing dividends(DV) plus the retention of earnings) improves the stockptice (SP)
and allows à utilty withà growing fute base tofin.ance significant aiounts of that growth
internàiiy.ri Thu.s, shareholder vålùe (SV) for the regulated . utility operation is thus
largely afun.ction of rate base, rate of retu, and kilowatt hour sales.W
R.ecent Trend in the Cost ofEguity Capital and the Utility Propensity to Build
There is one more critical fàctor affecting SV, and that is the level of the ROE
relative to the utilty's cost of capital. lfthe ROE is higher, then the utilty's SV wil be
higher than if ROE is lower, all else being equal.
Regulators are supposed to set the authorized ROE at a level equal to the cost of
equity capitaL. While the cost of equity capital is not directly measulble,tlere are many
incllcations, both quantitative and anecdotal, suggesting that the cost of equity in the
economy, (paricularly for an investment such as a utility company that is generally of
lower risk than the market as a whole), is lower th curently autlorized utilty ROE
levels.
If the ROE is higher than the cost of capital, the result is that the IOUs obtain
even more. benefits from iiicreasing Rl though new steel-in".the-ground investments,
p~rtcularly when the IOUs' stock is seUing above bookvalue.I2
Consider the recent prices of California utility stocks;l
· PG&E -- bok value $21.02, stock price $37.12. (77% above book)
· Edison Internationa -- book value $20.30, stock price $43.61 (114%
above book)
· Sempra -- book value $23.97 stock price $44..84(87%above~ok)
California utilties are not unusual in tlis regard. Utilty stocksnatiO'nwide.are
well~bove boO'k .value with a few. exceptions of firms hared by ..ene:rgy trading or the
hangø.yerfroni.pastenergy crises.
Prices draatically in excess of bok value ar oftn a sign that the. utility
industr is earing retus in excess of the cost of capitaL. Such conditions are . likely tø
A.PSC Docket No. 08-144-U
A.ttrney General's Initial COmments to Orders No.7 & 8
Attchment 2 30
Attchment 2
exist today. CaUfornia's authorized equity returns are 11.35% for PG&E, 11.60% for
Edison and 10.70% for SDG&E. (California Public Utilties Commission, 2005)
Both quantitative and anecotal evidence offered in Appndix A suggests that utility rates
of return should be moved to the single-digit ra.
Some anlysts believe and sevenil state Commissions have fQund tht new
g~neraion is more risky than other utilty investments such as trsrnission and
dibutioJ1 wires and needs a higher ret.il A modest increment of risk couiø. pe
found reasonable given the longer constrction time for generatipn prjec (in states that
dO not include Constrction Work in Progress in the rate base) and th grater risk of
r.egutory disalowanoe for generation projeots than for distrbution projects. However,
both of these risks are less for gas-fired generation than large coal and nuclear
prject.il Different cOmmissions have addrssed the issue differently, bu the
generation risk, when recognized, has generlly. been modest (less than lOQ bais
points).il Morevei, the arent that utilties nee a higher rate of retu to
co~nsate for generation risk COntricts the arguent that they need similar incentives
to unrte alleRedly less risky efficiency projects. To give a utility an EE incentive
comnense with supply projects must recogne that the utilty is neither investing the
caita nor ~ingthe allegedly higher supply risk. If a utility claims that it needs a
higher equity return to compensate for the higher risk and higher oost of equity capita in
generation, all else being equal, logic would dictate that the utilty should also need less
inÇtntive to engae in less risky effciency projects.
The redu,ction of authorized res to single-;git levels should not be viewed as
revolutiona, even though it is necssa not only to protect consumers but to reduce
inçetives for IOUs to. eschew EE and pursue supply. resources. Canadia regulatrs
have authorized single-digit equity res for a number of years. In fact, the firs equity
retu beløw 9% in recent memory has resulted from the current ROE indexing metlod
in Albert (one of the most economically conservative jurisdictions in Nort America),
which yielded an 8.93% retu for energy utlities in 200. (Atco; Ltd., 2006) In the
U.S., the Arkasas PSC 8,i.tloried retus of 9,4% to 9.7% for thee gas utlities in three
2005 rate cases, overding utilty claims that such . low rerns were unprecedented on a
nationwide basis and wollld therefore reduce the utilties' abilit to attt capital, while
APe Docke No. 08-144-U
Attrney Geer's Initial Comments to Orders No.7 & 8
Atthment 2 31
Attchment 2
the New Hampshire PSC authorized a 9.63% retu for fossil and hydro generation in
June 2005.
The Relationship Between Sales. Peak Loads and Constrction
The abilty to make capita investments is promoted when usage (paricularly
usage during peak periods) is growing. Most wires investments are driven by peak load
growth in local areas (either increasing use per customer or increses caused by the
addition of new customers). Generation investments are also often justified by the need
to meet loads during unhedged pea periods. Recovery of capital investments requires
iou revenues that are at minimum stble and at best increasing over time. This is
achieved by IODs' cultivating electicity sales though the following occurences: the
addition of new customers; overall growt in use per customer; and retention and growt
of sales during strtegic high-cost periods.
The stock analysts are clear that rate base is the key. "Mark Sadeghian, a utilties
analyst with the Morningstar researh firm, said PG&E appear to be on stable footing,
with its futue growt tied to getting more customers or winning higher rates. 'i see no
red flags,' said Sadeghian, who does not own PG&E stock. 'It's the sae story that it wil
be -- that in order to get the stock going, it depends on strong growth in the rate
(Baker, 2005)
A California example of this phenomenon can be found in the policy testimony of
Alan Fohrer, Treasurer of SCE, in the SCE 2006 General Rate Case (GRC). Mr. Fohrer
discusses the very large ($6.6 B) capital investent plan in trsmission and distibution
(T&D) for 2004-08. He attbuts $1.1 billon or 17% to "customer growt," and $1.8
bilion or 28% to "load growt for.. . existing substations and circuits to meet pea:k
load." (Fohrer, 2004, p. 12) Mr. Fohrr offers the following historical perspective on the
state's electric rate levels:
In addition, California's moderate climate, stong building codes, and
utility EE progrs have constraied electrcity consumption to a point
where per-capita electrcit consumption is one of the lowest in the nation.
In conjunction with increasing penetrtion of air conditioning use, these
factors have caused customer load to be relatively low on average but
also very 'needle peaed.' As a result, SCE's system 'load factor' has
declined steadily for decades and is one of the lowest in the nation.
APSC Docket No. 08-144-U
Attorney General's Initial Comments to Orders NO.7 & 8
Attchment 2
Attachment 2
~ uently ,the high fi ed for power supply and delivery
ctue must be eo 'ewer kWh sales, thereby creating
high rates when measured on a per-kWh basis. (Fohrr, 2004, p. 8)
Additiona.examles ar included in the foootes.ll
Furermore, California utilties own unrgulated entities involved in the
generation of electricity (except for PG&E which lost its affliates durng the.banpty
and is building almost 1400 MW of new generation though a regulated platform (pacific
Gas and Electrc Company, 2006). While affliate trsactions for long-term generation
contr~ were previously baned, the recent Palomar decision now permits utilty
affliates to rep development fees frm generation projects sold on a turney bais to the
parent utilty. (California Public Utilities Commission, 2004a) the overall ban on
contrting has been repealed, replaced with an "Independent Evaluator" strctue to be
used if a utilty proposes either to build a project or sign a long-ter contract with an
affliate. (Califoria Public Utilties Commission, 2004b) This change in regulatory
policy leaves the utilties in even more of a position to profit from load growt through
either regulated generation or ungulate afliates.
This thws a huge wrench into any staeholder aspirations that rate of re
regulation can be sufficiently counter-balanced thrugh alternative mechanisms such as
performance bas ratemaking (PBR). The cows are already out of the bar. Not only
utilities but also their unegulated affliates thve on grwing shareholder value. Indee,
one key purpose of such generation subsidiares is to allow regulated utilties a means to
exit their own regulate generation markets (given higher cost embedded power plants),
compete as IPPs at the wholesale level though affliates, and purue lucrative
opportities in regional trsmission.ll
Sal DecoU(liiig Mechanisms do not Make IQJ/s Compleelv Indffrent to Stiles
Volume Relative to Recovering Capital Investments
Revenue tre-up mechanisms such as the former Electric Revenue Adjusent
Mechanism (ERAM) (and the new proliferation of California balancing accounts that
accomplish the same thing) do not change the underlying basis of the IOUs' business
modeL. ERA addresses the short ru (between rate case) requirment that revenues
APC Docket No. 08-144-U
Attorney Genera's Initial Comments to Orders No.7 & 8
Attchment 2 33
Attchment 2
frm cost
of current capital
A stable or increasing sales base is paramount to the IODs' corporate business
model because it is the critical drver for recurg capital-intensive investments in a
combination of replacement and/or expansion of aging infrstrctue, and the addition of
new generation, transmission and distbution facilties, which are largely driven by peak
load increases. The cost of new "steel in the ground" projects ar included in periodic rate
case filings where increases in allowed revenues are accompanied by upward adjustments
to historic sales data. ERAM does not dissolve the underlying trth that sales growt - be
it kilowatt hours or widgets - is what makes the world go 'round for the capitalist
business modeL.
In fact, by reducing the utilty's overall business risk, ERAM (or a similar
revenue-per-customer decoupling mechanism) reduces the utilty's cost of capitaL. If the
utilty's rate of return is not reduced to reflect the lower risk (commensurate with the
reduction in the cost of capital), ERA may have far different short-term and long-term
impacts. Giving a utilty decoupling protection without reducing the retu on equity to
reflect the reduced risk would skew utilty shaeholder incentives toward growth in
capital investments by not recognizing the risk reduction. Thus, where the rate of
is above the cost of capital to begin with, it ends up even farer above the cost of capital
adjusted for the reduced risk than if decoupling did not exist.
Thus, ERAM alone may actually provide long-term incentives to reduce EE
program effectiveness (paricularly in peak demand periods) to promote capital spending.
The type of programs prevalent in California (which focus heavily on energy savings
relative to peak savings) may in fact be the logical result of a combination of: (1)
regulatory support for energy effciency that causes utilty administtors to want to
deliver "results;" (2) ERAM protection; (3) generous rate of retu awards in excess of
the cost of capital that do not reflect the risk reduction created by ERAM and encourage
rate base growt supportd by growt in pea demand; and (4) utilty progr
administration.
A stable to declining rate of growt in electric sales over time leads leveling
out or lessening in the magnitude of required capital investments, which in tum erodes
APSC Docket No. 08- i 44-U
Attorney General's Initial Comments to Orders No.7 & 8
Attachment 2
Attchment 2
$bhQlGer value pwcularly whe the. utlity rate ofretu excees the cost of capitl or
tle investnt 1:at ar d~fered are viewed a.s havin relatively low risk. As an addition
tQ.ERA, varous forms of performance incentives for regulatory-induced. energy
effciency ar an attmp to compense investo for this perceived loss in eaiu
oppoity.
Ql ~MølpJl WOO" /legl4n1ncmes 4I Ca Ietlofltiii;e
lOUl' P! et/J E/iiqPragr41
TbeJie are twg additiona finacial incentives related to th regutlry proess tb .
moti'\at the utilty to increa sales~ First th abilty to raise rates in any rate case from
a poli~~ staiRt depends on th sales foreast. A cost request th wolld result 4i a
$200 millon increse if saes wer. flat coulØ become a $100 millon increas if saes
Were growin (because of a higher estimate of revenue at present rates). This improves
tle '~optics" of ~ incre~es for the utility in the press and puJlic opinion, an may cause
reglators tQ be less cost conscious than when rate are rising more rapidly in at leat
Sûmecaes.
Second, retention of sales during strategic high-cost periods is a signifcant facr
in th rous' corprate objective because pe l~d is a critical drver of the sizing or
sçle of most GTD facilties and is widely use for cost allocatin to cusmei
classes. For iostace, if residential effciency saviligs are grater in lightig which is
largely off pe tlan peak load air conditioning; the reside.ntial clas load factor wil
contue to detriorate relative to the system average and to other custome
classe.s. R.esidential customer can thus remain the rous: "cash cow" though various
caretuUy craft pe-basi: cost allocation methodologies, while increas are not
spre as heavily to large non-residential customers. As a result, program that 1:ten
tle e:id~g cost .allocation strctu (such as air conditioner effçiency to reduce pe
deand) may not be fully puued.
P"f~ liy~fo Ene.Ef,m lUe E;;ive.am "VI ne &0.
SMfGasful
APC Doket No. 08-144-U
Attrney General's Initial Comments to Orers No.7 & 8
Attchment 2 35
Attchment 2
Achieving iou indifference to EE compared with supply-side resources requies
at minimum that the combination of ERAM and performance incentives make. EE as
profitable as the IOUs' most expensive capita-intensive resource plan. In order to induce
IOUs to embrace EE over other caital-intensive resources, regulators must make EE
more profitable than alternative resources. EE incentives must be substatial in light of
utilty incentives to promote sales growth to encourage revenue increases (even while
keeping rates down) to create a heaVy peak cost allocation for the residential class, and to
increase peak demand to build rate
that are comparable its alternatives wil be far more expensive than changing
administrators and choosing an organization without conflcting corprate
goals. Unfortately, no regulatory mechanisms can eliminate the reality that iou
energy effciency administtion creates trmendous opportities for IOUs to game the
system because the underlying business model of increasing sales to support ongoing
capital investments remains intact iOU EE administrtion will not inflU:ènce the
underlying corporate business model; rather. the businss model wil influence iou
administration. (A corollary is tht the utilty business model would not be expected to
influence an independent EE adinisttor in the same way.)
Given that IOUs still face dueling incentives because their long-term position is
enhanced by sales growt, the outcome of ERA plus performance incetives is po,
particularly with today's high authorized res. Performance incentives for IOUseither
end up being extremely expensive or do not provide enough
standing corporate incentives for growt, thus becoming ineffective and costly windfalls
for sharholders. If performance incentives were large enough to be competitive with
current supply side incentives, EE delivered by utilities would be far more costly than EE
delivered by other entities, if not more costly than supply side resources. It would be
cheaper to change the EE progr administtor than to give the utilty incentives to
offset the current incentives for supply resources.
Most if not all of the revenue tre-up mechanisms and performance incentives
that are on the táble today are failar artfacts from. the first wave of regulatory~indùc.
resource planning. A plethora of regulatory carots and sticks have been
minimal to negative results. For instance, history reflects that, despite receiving
APSC Docket No. 08-144-U
Attorney General's Initial Comments to Orders No.7 & 8
Attachment 2 36
Attchment 2
California utilties slashed energy effçiency progrs in mid 1990s. The end
result wa that they created a large portion of the 2000-2001 energy crisis by not
1800 MW of savings that they promised in the early 1990s as a rationale to
stop the constrction of new generation. (Marcus, 2003)
MfJ EE PfEWmf bi&eii'v as Strategic as Possible!'::"::'i:.'.',;,,:,'::::";"':"~""::'.//"::/.";',',-,'i:,"i"',:."':;.;,,-::::;/:.,,r\.':t,;:'-:,:,:::::"'.:i/:::i,.::..::':~::"';:':':::/':'::':'::"'::':;',-":'::"-'.-:-i',"',.';',:.::::-/'.,.:,:.:,.,;,,:.::,.,...:-::.;.::..,.,.;.,;....,'..,.:.:.,y..',...:._. "",' -: ':-":...;:' ..... ,,:..," " ,',',_,.::.,_.;.,_.:;.;.:':.:;.:.:.:',_";::....:',"'.. """;"',', ..
Incentives for EE cannot neutlize the incentive to build. Only a lower ROE can
begin do that. Neverteless, a more strtegic view of incentives could foster a thriving
and diverse energy services market through robust competition in progr design and
implementation. How?
First, recognize that incenting IOUs for simply administering EE portolios wil
not necessaly foster the best mix of portfolios and programs. Rewarding administrtion
will beget more administtion. The reward for performing EE portolio administration
should be the abilty to retain and continue the function. Thus, the administtive
assignent should be revisited from time to time. This is more in keeping with regulatory
trent of iou administrtion of equivalent supply side functions.
Second, focus on rewaring program that deliver verified and sustained savings
in a LCBF maner, with the BF or "Best Fit" aspect very importt. In other words,
energy effciency effort should focus on the critical end uses that drve supply-side
prourement. Examples of these are: Residential and commercial space cooling load,
which are the drvers California's sumer syste pea; with peak demand growing more
rapidly than energy consumption. Residential and commercial space cooling load is
drving California's $200 to $450 per MWh peak period avoided costs (calculated from
E-3 Corpration, 2004) and providing the backbone for some of the 30+ proposed coa1-
fired facilties in the intermountain west.
Third, understad that a system of incentives correlate directly to the quanitative
achievement of regulatory prescribed MW and MWh energy tagets -- without
consideration of supply side procurement critical loads -- wil encourge efforts to 'meet
the goals' with less than solid savings.
Fourt, recognize tht an incentive system with rewards based on maximizing net
benefits (higher benefit/cost ratios) and penalties based on kilowatt hour not achieved
APSC Docket No. 08-144-U
Attorney General's Initial Comments to Orders NO.7 & 8
Attchment 2 37
Attchment 2
wìl encourage the IOUs to "dig broad" but not "dig deep." Rather, it wìlgive IOUs
incentives to:
. continue to go after the cheap and easy savings such as lighting (the highest
B/C ratio);
. give lower priority to "lost opportnities" that must be achieved at specific
times or lost fordecadeseveniftheyare less cost..èffeêtive tha the cheapest
programs with more discretion in timing;
. develop progrs that look better on paper than savings delivered in the field
(e.g., refrigerator progras not geared by size that indirectly encourage
customers to use their rebates to buy bigger refrgerators, thus offsetting some
of the effciency gains)
. constrct portfolios based on energy savings that are not necessarily
correlated to the critical end uses that drive supply-side procurement.U1
Rewards based on net benefits have the additional highly unesirable effect of
allowing utilty shareholders to profit from high fuel prices. With the same incentive
strctue, higher gas prices would raise sharholder incentives at the expense of
ratepayers even if the utilty expended no additional effort on EE.
Fifth and finally, recognize that reward/penalty systems based solely on kilowatt
hours without correlation to the critical end uses that drive supply-side procurement could
work to erode system load factor over time. This can exacerbate supply~side procurement
because statewide and IOU-specific capacity infastrctue requirements (G, T & D) can
remain largely unchanged in relation even to significant reductions in annual energy
requirements.i: Thus, if incentives are to be used, the reward/penalty system should
incorporate into the energy tagets the critical end uses that drive supply-side
procurement costs.
Conclusion
The most fudamental way to motivate utilties to procure energy effciency (EE)
resOurces is to stop making supply-side investments so attactive. Incentives must be as
strategic as possible in order to promote a diverse energy services market though robust
competition in program design and implementation. Revenue tre-up mechanisms such
APSC Docket No. 08-144-U
Attrney General's Initial Comments to Orders NO.7 & 8Attachment 2 3ß
Attchment 2
as the ERAM may be reanable for other policy reasons but do not change the
undelYÙlg bssis of.the IOUs business model, which to increase rate bas. If the risk
re4CÌJ feaâlles of ER are oot conside by regulators thoug a lower ROE,
iMM nlay a~ly prvi4e leng temi incentives to reduce EE progr effeçtiveness (in
pe peiods) to promote capital spending.
R~gula1:rs must make EE more profitable th alternative resoures in order to
mQti:y~ the IODs to embraee BE over other capital-intensive resources. To do that, th
fir key step must be to reduce the profit incentive on trditional supply-side reours.
Otlwrwise we will just be thowing money at EE when it would be clwaper to have an
ùl4epcdent adinistrator witlout the supply..side motivation to promote growt. Then,
Qne must develop sttegic incentives to foster a thving and diverse energy services
maket though robust competition in progr design and implementation. The reward
for perfomiing EE portolio administration should be the abilty to retain and continue the
fuction since ths is more consistent with supply side fuctions. Regulators should focus
on rewarding prgrams that deliver verifed and sustained savings. The regulatory
in~tive systm should include critical end uses and energy savings tagets tht drive
supply-side procurement costs. Such incentives would speifically encoqrge effcieny
programs to ~uce residentil and commercial space cooling load, which ar th drivers
of Califora's summer system pea. This wil reduce the inherent financial confict of
intest between selling and saving energy and beer align iou and customer interests.
Apnd A: Addiiona Informan Supporting Lower Equit Returns
Using trditional cost-of-capita metrcs, .the Columbia Grup prepard a
qnatitative presentation as early as mid-2003 suggesting that utility equity returns
should be well under 10%. (Woolridge, 2003)
Additional quantitative infomiation comes from the utilties in their role as
investors. Utilties have an investment role in two key areas - as managers of pension
fuds (and similar fuds for post-retirement benefits and long-temi disabilty program)
and as managers of nucleR decommissioning fuds (which must be invested externally in
stocks and bonds).
APe Docket No. 08-144U
Attorney General's Initia Comments to Orers No.7 & 8
Attchment 2 39
Attchment 2
In the pension fund area, at the same time that it was authoried a retu on equity
of 11.35%, PG&E claimed that it needed to increa its pension..fud.contrihllti6nshy
$273 million (suhseqûently setted at $176 millon) in 2007:.2009 hecallse it projected
that the stock. market in the real world was performingfar lesswellthaiiits authorized
retu. PG&E's own estimate Was 8.3%, which it supported by conducting a survey of
10 actuarial finns. The highestofthe ten firms expected stock market performance in the
next 5-10 year to be 8.3%, and the mean expected performance was 7.5%. (pacific Gas
and Electric Company, 2006b) Southrn California Edison and Sempra also. expect
pension fund returns generally consistent with stock market retls in the 8,5%
range. Research has also been conducted across a broader cross-section of companies
(intllldirtg a.seieêtionof'tcomparble" gas comparies.as wen as.sevelilother utilitiesin
a'recenttate of tetlcase), suggesting expected retls fòrthe. stockmárKet as å whole
of 10~11 % in 2004. (Marcus, 2005)
As managers of decommissioning fuds, PG&E and Edison both projectedstoøk
maret retus for the market as a whole in the vicinity of 8.5% in late 2005J1.
In addition to examining utilty behavior as investors, we can look at analysts'
forecasts. . Utilty rate of retu witnesses often rely on "sell side" analysis by entities
sllchas Value Line that tend to project relatively high retlS. However,manyothêr
analysts forecast relatively low rates ofrefurn. FigureS from SØG&E'sdeoommissIorting
case~'vorkpapers . show the that five investment analysts project returns for .l);S; largeeap
stocks between 7 and 9% and a fift is considerably lower than 7%.
Another very importnt piece of quatitative data is a surey of Global" CPOs
conducted quarerly by Due University. The most recent survey finds tlia.ttheex.pected
retu on the S&P 500 in excess of 10-year US Treasur oonds (the "equity risk
premium") is 2.39% above the retu on the 10-year Treasury bond. This is a decline
from approximately 4% in 2000, and from slightly below 3% inthê third and four
quarers of 2005. (Graham and Harey, 2005) With a lO-year treasury trading slightly
above 5% today, this risk premium trslates into a return on the S&P 500 of around
7.5% hased on the most recent figures and 8% hased on the earlier 2005 figures.
Anecdotally thee recent articles suggest retus for the marketa.s a whole in the
same range of 8% or less. One of the aricles specifically details Warren Buffett's views
APSC Docket No. 08-144-U
Attorney General's Initial Comments to Orders No.7 & 8
Attachment 2 40
Attchment 2
of market conditions (Bloømberg, 20(3); a second presents the views of five stock
market expert on futue retus for retirement accounts (Fortune, 20(5); and the third
suggests a ten-year retur of 6% because of high curent price-eaings ratios,
with loager term retus closer to 8% (Wibel, 2005). Utilty stocks with their rate ca
st tht guartees an opportity to ear a specific return are generally less risky
than the average of the market.ßl Therefore, one should expect that they would ear less
than a diversified basket of stocks, not more.
Finally, over the past 50 years a basket of gas utilty stoks actally out-
performed the S&P 500, suggesting that regulators are not providing appropriate
reductions in ROE to reflect the lower long-te risk of these compaies. (Marus,
2005)
lefenmces
Ateo Ltd. 2006. Atco Electrc Receives Decision on General Rate Application." press
relea March 29, 2006.
titt://WW.stockh9use.ca/news/news.as?newsid=3517738&tiçk=ACO.Y
A verch, H. and L. Johnson. 1962. "Th Behavior of the Finn Under Regulato Consint," America Economic
Rnie, December 1962
Baker, David R. 2005. "PG&E Profit Drops: Decreae Attbuted to Utilty's Exit frm
B~ptcy in 2004," SFGate.com, May 5, 2005.
htt://~.sfgate:£9inçgi-
binaricle.cgi?file=/c/a/2005/05/05/BUGKQCK 1 OQ I.DTL&t:=¡irintal;le
Bloomberg. 2003. "Stock Investors Should Expect 6-7 Percent Anual Retu, Buffett
Says." Bloomberg News Service, May 3, 2003.
li:l!gYQ.bloomllrg.coinSlnews?¡iid= 1 0000 1 03&sid=al.ne,QMy8DeU&re
fer=us
Bryson, John. 2005. "Business Overview and Strategy." Presentation of Edison
International at the M9rgan Staley Anual Global Electricity and Energy
Conference, Marh 9, 2005.
California Public Utilties Commission. 2004a. Decision No. 04-06-011 (June, 2004).
littp://ww.c¡iuc.ca.gov/word .,fIFINAL DeCISION/3 7423 .doc
,2004b. Decision No. 04-12-048 (December 20(4).
APse Doket No. 08-144U
Attorney Genera's Initial Comments to Orers NO.7 & 8
Attchment 2 41
Attchment 2
http://ww.cpuc.ca.gov/WORD PDF /FINAL DECISION/43224.DOC
, 2005. . Decision No. 05-12-043. December 2005.
http://ww.cpuc.ca.gov/PUBLISHED/FINALDECISION/52l50.htm
E3 Corporation. 2004. Cost Effectiveness Avoided Costs and Externality Adders.
(January 2004) electronic workpapers.
Fohrer, Alan. 2004. Southern California Edison Company. Policy Testimonyil1
California Public UtiHties Commission Application 04..12-014, SeE 2006 Test
Year General Rate Case. December 2004. Exhibit SCE-1.
Forte, 2005. "Get Real About Your Future," Fortune (July 11,2005), pp. 41-48;
Graham, John R. and Campbell R. Harey. 2005. "The Equity Risk Premium in Januar
2006: Evidence from the Global CFO Outlook Surey," December 19,
2005. Available at SSRN: http://ssrn.com/abstrct=871105
Iowa Utilties Board. 2002. Order in Docket No. RPU-01-9.
http://ww.state.ia.us/govemment/com/util/ private/Orders/2002/0529 rpuO 19.p
gf
Lauvergeon, Anne. 2001. "Reliable and Sustainable: toward a New. Ima,ge of Nuclear
Energy." presentation to the World Nuclear Association Anual Symposium
(September, 2001).
Marcus, Wiliam B. 2003. Testimony on Generation Procurement Policy on behalf of
The Utilty Reform Network. CPUC App. 02..05-004, ; SeE 2003 Test Year
General Rate Case. December 2003.
. 2005. Prepared Testimony on Behalf of the Attorney. General. Arkansas Public
Serviçe Commission Docket 05-006-U re: Arkansas Oklahoma Gas
Company. htt://ww.apseservices.info/PDF/05/05-006-u.115 I.pdf and
http://ww.apscservices.info/PDF/05/05-006-u 116 I.pgf
Mitchell, Cynthia K. 2005. "California Energy Effciency From an IRP Perspective"
California Energy Commission workshop on Energy Effciency Policies and
Options for the CEC's 2005 Integrted Energy Policy Report.
http://ww.energy.ca.gov/2005 energypolicy/documents2005 index.htnI#07ll
05
APse Docket No. 08-144-U
Attorney General's Inítíal Comments to Orders NO.7 & 8
Attachment 2 42
Attchment 2
Moqa Staey. 2004. ~~Edis Intetionl: Tatget Raise; Merchant Subsidia :A~
to Utility Value" US lmistnt Pe73pec:Jives (May 12,2004).
1\~
PG&E Corpration. 2006. "PG&E Corporation: Customer Focused, Value Drven."
Preseftion to mvesor Confence, New Y 0*, NY (Marh 1, 20(6)
ce.. f
Pacific Gas and Electric Coinpany. 2006. "Pacific Gas. and Electric Company Subnts
Long-Teti COR~ to ÇaifQnR8 Public Utilities CornS$Ion," News Relel,. ". - '.' . ". .' ',.' , - ,'..', ',' , -,,,
April 12$ 2006.
lm:/tYf.£1e.coMwsjncs releaseq2 2O0612.html
st 3-4 of th Utilty Reform Network in CPUC
General Rae Case. (J 19, )
T~y, .Berad~tt, 2005. ";lG&E CQrp.'s profit drops in 2nd qua 28% fal stll
be expections of severa mays," SFQa.com .August. 4,
2005.
t/-~:,,--',-r
usiness
Wibel, Keith. 2005. "Prparig for Low Rets," Baons (Augu29 2005).
Woolridge, J. R. 2003. "Why ar Allowed rates of Retu Too High?" Pr~tation to
2003 NASUCA Anual Meeting, Atlanta, Georgia (Novembe 19,
20(3). btt:IIWW.columbiagoupinc.conimagestOR-200-LG.ixf
il The autorsdehe "'Le-ost bet fi (LCBF) as th proent of ~st~:tve suppl~ an
demad-side resources that rega of ownerip. mee cait an ener âelivelity requien.
Bne, effci'aCY 1'rce are consct frm a "bottoms up" approch that agga the ded an
ei saingsfrø11 vaus energ-savig meaties and activies into aplicae end-us caries sih
a; spae coling, sp hea ligBg, and refiertioB~ in order to provide ne- and long-ter peg,
intrmediate, and baseload reuirents."
.w Ircome tae$Ùi~luøe both taes c~nty, paid to the gøvemment aid fu "detên taes~' ariBg
frm accelered depreiaon. of utility plat for ta pl.ses. These defered taes beme par of the
tilit'sca flow in the sAo term. If the utilty system is grwing, the balance of deferred taes
incrass. However, if the system stops grwig, deferrd taes eold end up beii repaid to t;e
APC Docket No. 08-144-U
Attorney General's Initial Comments to Orders NO.7 & 8
Atthmt 2 43
Attchment 2
governent, recing the utilit's cash flow. Moreover, income taes are set to allow
ROE afr taes. A utility is thus unlike many industres, beause its taes are asumed to be paid before
the ROE is set.
il With reaonable allowances for interest dur constrcton and for working capita and a reduction for
defered taes collected though the income ta allowance frm ratepayers before they are paid to the
governent.
li Between rate cases, a decrease in expese or rate base relative to the amount on which rates were set
can also trslates into higher levels ofNI.
il California, unike most stas, has a reglary featue th is very favorale toutiliti$ - a future test
year. For example, the curent PG&E ra cae is seg ras for 2007. A "futue tet year" means that
California rates are set based on a hypothetical futue year, using a forecast of EX and RB (rather than
historical figues adjustd for known and meaurle changes). In this relatively unique California context,
another way to increas NI is for the utility to overforet futue expenses and RB.
Wwileearings pe share increae more in the event that coritrction ca be financed entiely though
retained eaings, if a utility's stock sells abve book value it ca stil increase its book value and earngs
per share (though by a somewha lessr amount) by selling new shars on the open maket to finance the
rest of its constrcton budget.
il In the short ru, eaings incras only by cuttg costs (either though productivity improvements or
service degradtion) or raising sales (absent a revenue-sales decoupling mechanism). Cost-cuttg can
either be legitimate or a result of over-forecasng EX or RB in a stte with a futu test yea.
m This is not the only way to increa shareholde value. As we know from the diversification of utilties,
someties, shareholder vaue can be enanced by succesful investents in other lines of bus mess. Also,
within the regulated utility model, shareholder value can be enhance by succssf asset manement and
energy trading. The role of afliats in sharholder value is rase latr.
SV - Shareholder Value; DV - Divideds; SP - Stock Prce; NI - Net Income (or Eaings); ES -
Earings Per Sha; R - Revenues; Ex - Expeses; P - Prce; S = Sales RB - Rate Base; RoR - Rate of
Retrn
e SV f(DV and SP)
e (DV and SP)f(N and ES)
e (N and ES)f(R-Ex)
eR=(p*S)
eR=(Ex+RB X RoR)
Thus, SV f(R X RoR) and SV f(S)
f2 This phenomenon (that a regulat utility wil preferetially choose capital-intensive technologies) is
known as the Averch-Johnson effect afer a seminal paper wrttn in the 1960s. (Averch and Johnson,
1962) Averch-Johnson does not hold under all conditions, but when the utilty's stock is selling
comfortbly abve book value and there are indicatons that the cost of capital is below the utilty's retu,
making choices to increas rae base will increase utility long-run earings per share and wil encourge
utilities to choose capital-intensive tehnologies over technologies with similar long-ru costs.
llFigues are Decmber 31, 2005 stok prces and end-f-yea 2005 bok values. .
Ul The exce "risk" of generon is not a crtica issue in California, even if utilities elsewhere have
raed it. In the utility investor presentaons referenced below, in Appendix A and footnotes 15-16, neifuer
PG&E or Souther Caifornia Edis have informed their invesrs th their new utility-owned generaion
project are more risky than trsmission or distbution investments.
Wl The nuclear industr is concerned abut high require res bese of its capit intesity. A
nuclear energ proponent wrte: "nuclea power competiveness will be hampeed by a high rae of
inteest, a required high rate of retu on equity, or a high risk premium related to fmancers' risk
aversion." (Lauvergeon, 2001, page 5).
APSC Docket No. 08-144-U
Attrney General's Initial Comments to Orders NO.7 & 8
Attchment 2 44
Attchment 2
Wl for exPle, the Iowa Utilities Board rejeced a eøippetitive equity ret for regua~ gene
use the top end of a nsk premium analysis (100 bais points above the midpomt) to set
l', Howe¥~~ npt use a fuel aàjustmt cla,se ($0 that geneiation r\nkS ar likely. to be
. es Board, 2002) On the oter . Hapsire
for a blok of hydro and fossil assets wa only 21 bais
r AA inte utlity and set the g~eraon equity i:etw at only ~.63%. (New
Commission, 2005)
WlG~ and it fic;ial anysts point to "collections of new customer and demand growt" as one key
drver for increaes in distrbutpn rae bas. Significat trmission grwt is also exp. PG&E
ploj~ts 7,5% eain growt ba on a 6.3% grwt in rae bae frm 2006-:2010 (even ~ludtng about
800 MW ej: utlity-owned ~en~ration anowce in Apnl,2006). (pG&E Corpraon, 20(6). . .
Financial analysts! repose to a 28% 9rP in secnd quar 2005 profits at EG&E Corpraton
~ is *o.Intrtive. "Morngs equity analyst Mar Saeglian sa PG&E'sgrowt wil coe
frm tl acwsitin of new physical as~ like trsmssion Ijnes~ distibution equipment and generng
plants, whose cost wil be covered by utilit ratepayer if state regulators approve. 'PG&E has a prett
~Qi.us plan to. get back to basics and build the rate ba. '" (Tansey, 2005)WI This corpora sttegy has wored for Edison Interatonal, as refleced in the following matna
quoted from Morgan Staley, 2004. "We have increa our pnce taet for Overeight-rated Edison
Intetional shars to $28 from $24, as our new analysis of the Edison Mission Energy (EME) merhant
subsidiar shows $6 - 10 per shar of long-ter intrnsic value....Edison'g Mountaview genertig
projec has aldy added nearly $2 per shar in net present value, by our estmate, and we believe fuer
geneon an trsmission buildout could add upside. Edison is building Mountaview as an
unegla subsidiar, to protect the long-term value of its sizale investment and avoid potentially har
fure regulation. The SoCal Ed utiity will purchase Mountaview's outut under a 3O-yea contrt. The
contr detals ar not public, but the company suggested that the ret wil exce a regulated utility
ret. The plat should contrbue to EPS (eaings pe shar) in 2006."Xemphasis added).
As an additional example, John Bryn, CEO of Edison Interatonal, (Bryson, 2005) offer a
look at the new unregulated futu - a "balance business mix" of "strong utility operatig in a la
an rapy :rowing servce teritory" and "unreguated business platform wit lare bas of low-cost coal
aset".!IS) Edison International growt is projeced to be stong due to:
· The hybnd system of electrcit reguation in the U.S., ElX benefits frm having both a
utilit and a competitive generator,
· Substial growt in the Souther California Edison utility rate bas anticipat throug the
remaider of the decde; and
· Oprtities in the unregulated businesses.
ll This disoussion below does not consider Perormance-Based Raemaking (PBR), which can be
implemeite indepdetly of deoouplin. It relates to a regulatory stcture where decoupling is tied
either to conventiona ratemaking or to anual atton revenue increases (annual inflaton and rate base
adjusents with no significa productvity offset) as are now the norm in California. The recent
expeion of increing utilit distbution cos ended California's ten-yea expence with PBR, which
was put in plac durg a penod of declining utility costs.
ui Caifornia's pe deman is growin more rapidly at 2.4 percen anual than the annual growt rate in
ener consumpton at 2% (2000 data). Across the stae, the relationship betwee annua ener use and
pe demand (load factor) is detenorating. Residential and commercial space coling acunts for about
one-third of the daly summer system peak. Residential air oonditionig load is chatenstically very low
load facr/peak coinoident; meain it is concetrte on a seasonal and tie period basis to hot summer
days. An incentive mechanism based on maxmizing net benefits and anual energy savings does not
APse Doket No. 08-144-U
Attrney Geer's Initial Comments to Orers NO.7 & 8
AttchmelJt 2 45
Attchment 2
encourge utlities to parcularly
residential. (Mitchell, 2005).
!. Without a strong and concert effort to improve the effciency of electric space coolirig load, pe and
super-peak period energy saes will remai relatvely unchanged. This means th the curent phenomena
of peak demand growig more rapidly (2.4%) th energy consumpton (2%) in California, will not only
continue, but widen if the IOUs energy effciency progr are successful in saving large quatities of
baseload and offak energy.
ll Edison and SDG&E used a Global Insight forecat avering 8.45% (arthetc average over the next
20 year for th S&P 500, while PG&E used a Rusell & Co., foreca of 8.5%.
~ Aftr their bouts with poor finances, PG&E and Edison have a "beta" (measure of nsk relative to the
market as a whole) of approximately 1.0 (in other words, their nsk is about equal to the maret as a whole),
but comparison groups of pure play gas and electc companes tend to have "betas" th ar considerly
lower, in the range of 0.7 (risk 7()1o of the maret as a whole). Even these "beta"may be overstated
beèause of the risk of specific unegulated acvities wiin entities that are largely bùt not entiely
APSC Docket No. 08-144-U
Attrney General's Initial Comments to Orders No.7 & 8
Atthment 2
CERTIFCATE OlSERVICE
I, Sa i.. Taç, do her cefy tht on tls 24th day of Apl, 20, a tr
æd oøæct copy of th above Inti Comments to Orde No.7 and 8 wee se upn
ea pa of rerd by eml for fit clas mai.
AP Dole No. 08-144
Attorey Ge's Initial Commen to Orde No. 7 47
BEFQ BE
NEW MEXICO PUBLIC RE ULATION COMMISSION
IN TH MATTER OF A RULEMAG TO
REVISE NMRC RULE 17.7.2 NMC
TO IMPLEMENT THE
EFFICIENT USE OF ENERGY ACT
)
)
) CASE NO. OS-624-UT
)
REPLY COMMTS
of
AA
Prepared by Cynthia Mitehell, Principal
Energy Economies, Inc.
May 11,2009
Introduction and Summary of Comments
AARP appreciates ths opportty to provide reply comments regarding the New
Mexico Public Regulation Commssion's (NMPRC or Commssion) Amel1dedNotice of
Proposed Rulemakg Case No. 08-002-UT, dated March 12,2009.
The April 13,2009 Opening Comments of the varous paries recommend that the
Commssion reject Alternative B Paral Decoupling, either in its entirety (AA, the Attorney
General's Office, Industrial Energy Consumers, and the Coalition for Clea and Affordable
Energy); or defer possible consideration to a later date (public Service Company of New Mexico
(PNM), El Paso Electrc Company (El Paso), Southwestern Public Service Company (SPS), and
New Mexico Gas Company). Instead, the Alternative A taff rider is the predominate focus of
either the paries' support or critical critique. Alterntive A includes:
1. A taff adder of 1 cent kwh and $1 0 kw based on estimated lifecycle savings,
recovered all in first year (year 1).
2. Opportty for rat design modifications to allow recovery of more fixed costs
through customer charges.
3. Opportty for "additional" unpecified incentives, removal of disincentives -
tied to rate design
4. Opportty for energy effciency cost recovery though a regulatory asset fud
for capitaization or single-year expensing.
AARP's reply comments address the followig issues from the openig comments:
· Whether the 2009 federal Stiulus Act and state HB 305 estalish utility care
blanche entitlement to possible energy effciency "lost revenues" and additional
shaeholder incentives.
· The reasonableness of Public Servce Company of New Mexico (PNM and El
Paso Electrc Company (El Paso) proposed taff riders.
· The findings and recommendations of other paries on Alternative A.
Comments of AARP New Mexico
Case No. 08-00024-UT
Page 2 of9
The i009 federal StilØuhis Act aBdstate DB 305 do Ilot establish a utility
eBtiti~B\Bt to either possible eDerg effciency "lost revenues" or additional
shareholder incentives.
First and foreost, AA takes issue with the PNM's representation in its opeg
comments tht "PNM is entitled to recover though a disincentive mechansm those lost revènues
that result from the implementation of energy effciency programs that PNM paricipates in or
dits as a result of the federal Stimulus Act dolla (or stte HB 305).,,1 Simarly, PNM refers
to the federal Stiulus Act and stte HB 305 as providi what PNM descnbes as an
"obligation" and "imperative" to utlity 10st reventt recovery and additional shaeholder
incentives. 2 There are no such entitlements in eith state or feder law.
The federal Stiulus Act dollar (1) do not spefy recovery of "lost revenue" and (2)
speifies that utility energy effciency be cost effective.3 The chaian of the House
Subcommittee on Energy and Envionment, Ed Markey is on record disagreeing with the
asonmade by PNM tliat any paculâr form of ratema is requi under the Act:
"The lagie does not mandate decoupling," sad Rep. Ed Markey (D-Mass.), chaian of the
Energy and Environni~t Supcommjtte on the Energy and Commerce Coi:itt. "There ar
may ways to satisfy ths requirement. It does not rèqti states to implement decupling," he
said.4
i PNMOlin Comments p. 3. "Federa Stiulus Act' refers to the recently enaed Amercan Recover and
Reinvestment Act of 2009.
2 PNM Ope Comments p. 2.
3 To receive Stiulus Act grants for energy effciency and conservation, states must assur the DOE th thy wil
employ generl policies tht:
· fuur utility fiam:ia ~entives ar aligned with helping customer use energy more effciently;
· Provide tiely cost recovery and timely eaings opportity for utlities associated with cost.
efecive meaurble and verifile energy savigs in a way tht sustain or enhances customers'
incentives to use energy more effciently;
· Implement cert buildig codes by star or local governents; and
II Pdori~ the grts towar fug energy effciency and rewable energy progam.
4 Katheri Ling, E&E reporter, Stimulus does not require 'decoupling' .. Marey (Tuesday, Febru 24, 2009)
Commen of AARP New Mexico
Case No. 08.00024-UT
Page 3 of9
In addition, HB 305 requires that "the commssion shall, upon petition or its own motion,
identify reguatory disincentives or barers for public utility expenditues on energy effciency
and load management measures and ensure tht they are removed in a maner that balances the
public interest, consumers' interest and investors' interests." (Emphasis added. NMSA § 62-17-
5.P.)
Asdiscussedin the followigsection,MR does notbelievethePNM's, EIPasg's,and
Southwest's.pr9posed.tariffriders meet the Stiulus Act C(st effectivenessPwvisi9l1 ortheHB
305 provision of balancing the public inteest, consumers' interests andinyest9rs' interests. The
calculations described below indicate tht based on the estiated cost per kiowatt-hour 9f
energy saved (energy effciency programs plus taff rider costs), ths proposal will be far too
costlyfor consumers, makng energy effciency one of the most.costly resource options instead
of one of the most cost-effective.
The p,opøødtariffriders of Public Servce New Mexico (pNMaudrrBI Paso
Electric Company (EI Paso) unreasonable.
Reply to the Proposed Tariff Rider of Public Servce New Me:tco
PNM's proposed Alternative A taff rider of$5.01 milion in 2009 and $7.14 millon in
2010 would effectively increase the PNM's September 2008 Proposed Energy Effciency 2009
Program cost of $13.4 millon to $18.41 milion or an increase of 37.4% in the tota cost ofPNM
energy effciency Using the 2010 energy effciency program cost of $17.3 milion from PNM
Witiess Mayhew, PNM's 2010 $7.14 millon rider would increase the 2010energye.ffciency
programs' cost to $4.44 million for a 41 % increase in the tota cost ofPNM energy effciency. In
other words, PNM's proposed taffrider would result in a 37% to 41 % retuon ratepayer - not
shaeholder - investent.
Working with the 2009 estiated tota lifetie energy effciency savigs of 435.97 GW1
from PNM ExhbitCDB~2, the lifecycle cost per kilowatt..hour saved would be $(;,0422 (4.2
cents). Under the provision for recovery in ful the taff rider and energy effciency program
costs in yeaitone, the cost per kilowatt-hour saved escalates to $0.3657, or thi-seven (37) cents
perkW1! For 201 0, AA estiates the lifecycle cost per kilowat-hour saved at $0.0339 (3.4
cents). Under the one year recovery provision, the cost per kilowatt-hour of saved jumps to
Comments of AARP New Mexico
Case No. 08-00024-UT
Page4of9
$0.3589, or th-six cents per kWh. Ths mea tht PNM's energy effciency program will
cost considerbly more than equivalent supply-side resources.5
AARP Calculation PNM Cost per Kilowatt-hour of Elecncity Saved
Rider Rider
2009 %2010 %
Totl Totl
$ millions Cost $milHons Cost
EE Pr9QfW Co§t $13.40 $14.00
Tarif Rider $5.01 $7.14
Totl Cost $18.41 37.40%$12.14 51.00%
lifeccle cost $Ikwh $0.0422 $0.0335
cost kwh recovery
in full 1st year$/$0.3657 $0.2901
AARP suggests that these are very conservatve cost calculations given that residential
compact fluorescent lamps (CFLs) in PNM's propose 2009 energy effciency program are
29.506 GWh or 50.7% of the fit year combined program tota of58.l49 GWh. Per AA's
Intial Comments, PNM's proposed use of ratepayer fuds to provide discounted CFLs would
duplica curent private sector reta maket activity.6 In other words, ifPNM is allowed to
procee with its propose 2009 residential CFL program, it is highy likely tht the
Commssion's independent EM&V would adjust the residential CFL savings downwar by 25 to
50%to account for high levels of PNM CFL program "free riders", 7 thus drving up the cost per
5 Se fotnote 9. The fial impact on consumers' bils from energy effciency costi upwards of th cets pe
kilowatt-hour t;øpen(i on the number' hour sides the energy effciency progr costs and taff rider
costs are spre As . cost several times more th equivalent suply-side
reours, on a co be higher from energ effciency.
6 See Utility CFL Donited Energy Effciençy
P sales of CFLs for seleced sta, indicaes th absent
uti apove the natioiW average' '1 sales per caita:
1 st .. cmonal Average 15~5; New Mexico 22.74, national rag 2; a 12.29) Janua 2007-
March 2008 Natonal Average 54.23; New Mexico 106.35, national Faing 1; California .20.
7 Free riders or Free Ridership refers to progr pacipants who would have inalled the progr measure or
equipment in the abence of the p.rogr. Free rideshp rates caculated as Net to Gre Rati. NTG is
defied as a ratio or percentage of net progr impa~ts divi gross or total impac. Net to gro rati are
used to estimate and describe the free.ridership that may be occug within energy effciency progrs.
For ince a NTG ratio of 0.50 or 50% mea that half of all utility. EE progr parcipants ar free rider who
would have installed the progr measure or eqipment in the absence of the progr. Source:
ww.çpcu.ca.govIPUÇ/energy&nergy+EffciencyÆE+Poliçy. Energy Effciency Policy Manual v.4.
Comment of AA New Mexico
Cas No. 08-00024-UT
Pag 5 of9
KWh saved on a lìfecycle andfust year basis considerably.8 At theše cost projections, A.
does not belìeve tle PNM's proposed rider meets tle Stiulus Act cost effectivenessprovìsìoll,
or tle HB 305 provìsion ofbalancìng tle publìc, consumer interests, and shareholder and should
be rejected.
Reply to Proposed Tariff Rier of EI Paso Electric
El Paso Exhbìt EDE-1 provìdes tle utilìty's estiate of anua lost. fix.ed costs for tle
years 2009 tlougl 2013 totas .$6.89 milion, and by year as follows:
. 2009:
. 2010:
. 2011:
. 2012:
. 2013:
$337,492
$1,022,998
$1,530,392
$1,943,344
$2,052,527
El Paso estimates tlat on a cents per KWh of energy saved, the anual lost fix.ed costs
would for 2009 equa $0.06145; 2010 and 2011 $0.0652; and for 2012 and 2013 $OO()6906.
Witlout EI Paso's projected energy effciency program costs for 2006 on, AA is not
able to provide an estimate of tle total cost kilowatt-hour of energy saved, as we could with
PNM because PNM filed additional information. Even so, AA suggests that six to seven cents
of anua lost fixed costs per kilowat-hour of energy saved, when combined witl possible
The Californa Public Utilty Commission Energy Division's independent evaluation, measurement, and verificaton
(EM& V) of the California utilities 2006 - 2007 CFL progrs found very high levels of free ridership, with the
utilities' EE portolios claied accomplishments over 50% CFL GWh energy savigs. This resulted in a
considerable downward adjusent in the utilities claied accomplishments. See liitial COmments of.A.Alt,
footnote 4"TheCAIOUs' recent EE 2006 and 2007 reported acomplishments tht collectively theutiliti~shad
achieved amost 130% of the CPUFsel~ctc~oa1and over 110% ofthe.CPUC'sgas~oal. ...Perthe En.ergy
Division's Februar 5,2009 Interi Claim Report the Californa lOUs are collectively at only 78% of the CPUC's
combined eie~tric,and natual.~~s~oals."
See fl)0in~te6.åbve,reference to AAlnitial CommentS, Atthment 5. NewNtêXicopercåpitaCFL sales~9sent
majo~ utility ÇFL disc()~ts are significantly higher th California's per capita CFL sales withmajorutilit CFL
disc()l.ts.. Thus depending on the level ofPNM assumed free riderhip, the Commission's indepndentEM&:V'
could adjust the residential CFL savigs downward by 25 to 50%00 account for high levels ofPN CFL. program
"free riders".
To review California NTG rates, please go to:
ww.cpuc.a.govIPUC/energylEergy+Effciency/Resoures+ad+Datbases.Click on "DEER May 30, 2008
Update for2009~2011" and follow the link to ''NTG Values for Residential Measures".
8 A higher cost per kilowatt-hour of energy saved wil not compar favorably with near- or longer-te avoided
supply side costs See footnote 9.
Comments of AARP New Mexico
Case No. 08-o0024-UT
Page 6 of9
ener¥y efficienCYP:togram costs of the. to. four cents per kilowatt-hour of energy saved, does
not compare favoraly with near- or longer-term avoided supply side costs.9 For these reasons,
AA fids that EI Paso's proposed rider does not meet the Stimulus Act cost effectveness
provision, or th HB305 provison of balancing the public, consumer interests, and shaholder,
and should be :.j&Ce4.
Reply .tQ BFQ'~ Tari Rier of Soutbw~terD PublieServee Compaøy
Southwester Public Service Company also supports Alternative A. AA calculatons
show tht unde the provision for recovery in ful the taff rider and energy effciency prgr
costs in yea one, the cost per kilowatt-hour saved escaates to $0.1538, or fifteen (15) cents pe
kWh.10 Here agai, AA does not b~lieve it reasnable for SPS ratepayers to pay more for
energy effciency than equivalent supply side resources.
11
Reply to the Commentsof;Otler Partes 9D ÅÌernative A
Tariff Rider
Comments fied by the Offce of Attorney General (AG) recommend tht theßder be
rejeced for. its lack of analysis, explanation or detal about how it was arved at or how much
would be collected frm customers. The AG finds tht any attempt to captue "lifetime" savings
9 See Comments, p. 12:
"A$ note in Setion.t AA's position is th the tari mer. is "too rih" and th reover of esmate
lifecyc1e savins in the fut year durg energy effciency implementation is cern to result in the contentous and
entrenched BM& V J)rød.. Seg the taff ride at 1 cent per lifecyclekw and $10 pe lifecycle kw is
excessive when considerng that the mar inal cost of a kilowa .
. al cost of a .
ma . al ofa rn be much closer to a 'cke!. AA is very concemedthatthe
proposed rider will provide h tilty rewar (if not windfalls) relative to the avoided cost value of very near tem
low frit such as s. Furer, offerig a full peny lifecycle savings for BE with poible
es lives of up to 20 yea does not reflect the timè otmoney. There is too much emphais on the
possible nea te avoided cost value wi no 10lg ter discountin." (emphasis added.)
10 From Dir Testony ofRuthSák Soutester Public Serce Compay, 'pe 13, lins 5 -6: SPS' 200
goals ar 22,569,817 kilowatt-hour; page 21, Table 3 - Qutification of Alternative A, 2009 total incentive
$3,424,171.
11 See footnote 9.
Commnt of AARP New Mexico
Case No. 08-0oo24-UT
Page 7 of9
would be speculative, likely overstte the benefits to ratepyers, and would result in an unai
burden on ratepayers.
, The AG also correctly notes tht the rider and lost revenues
all of a utility's kWh efficiency savigs may result from off-system wholesale saes, A. adds
that in addition to varable fuel cost, there are also varable O&M costs that should be removed
from the calculation of possible "lost" fixed cost revenue. Furer, PNM andEl Pasó revenue
requiement should also be adjused downward to reflect that energy a
utility's uncollectible customer bil cost. Thus, while some analysis ha been by PNM
and EI Paso, for the reasons discusse herein and in the prior section, A. support Mr. King's
recommendation tht as proposed the taff riders be rejected.
A. also supports the AG recommendation tht if the Commssion does establish a
rider, it should be reset to $0 when utilty rates are reset in a base rate case because in a base rate
case, a utlity's revenue req~e~ent~~i,retlect any løstr~y;enuesçlue~,~ne~m'\øffi~iency
measures.
Reply to Comments on Rate Design
A. agrees with the AG's and New Mexico's Industral Energy Consuners
finding tht the requiement for a rate design proceedig outside of the normal rate case, and
where all cases be filed at the same time, will result in an undue hadship on the commssion
sta and many intervenors who have limited resources to commt to cases. A. support the
AG's recommendation tht ths requiement be removed from the rue'asthere' is no reason to
requie the rate design to be separte from a rate case. In addition, a longer widow of time
should be given for sta and inteenors to parcipate in caes.
A. opposes NMEC's sttement tht "the curnt trend of very low fixed charges in
residential rates, is perhaps the single largest 'disincentive' for utilities"; and NMC's
recommendaon that ,~'Adiustig such charges with the residential class is the most effectve
Comments of AARP New Mexico
Case No. 08-00024-UT
Page 8of9
method of removig disincentives.,,12 Increing the customer charge (which would necesitate
reucing volumetc rates to be revenue neutr) is contr to the goal of encourging energy
effciency. Inded~ such a rate design discourages conservation, as usage becmes less
exensive. Shing costs curtly recovered on a usage basis to the fixed charge is espeially
ha to low usae custmers~ who are often older households and low income housholds.
Increasin fixed chages~ whether though increas customer chages or new adjustinent
surharge mechansms~ disproportonately increases the bils of low usage cusmer.
As discussed in AA's Intial Comments~ allowing the recovery of addition cost
thugh increased fied (customer) charges is at complete odds with encouraging energy
effciency. Overall~ rate design that is heavily oriented towar fixed charges disadvantages low
use cutomers~ who are prily low inome or elderly and makes it more diffcult an more
expenive to promote energy effciency.13 Thus, AA recommends tht the Commssion
disregard NMIC's comments on residential rate design.
Conclusion
AA support the stte's efforts to increase energ effciency program available to
consumer. However~ the cost recover and incentive mechansms (Both Alterntives A and B)
proposed in ths rue should be rejected for violating stte and federa law on cost effectiveness
and failing to meet the stdad in state law tht such balance the interest of consumer and
utlities.
Respctfly Submittd~
AA
Patrcia A. Cardona
AA Representative
535 Cerllos Rd., Suite A
Santa Fe~ NM 87501
12 NMC's Oping Comments page 15.
13 AARP Opeg Comments page 13 -14.
Comments of AA New Mexico
Case No. 08-0024-UT
Page 90f9
U~i:MQ..,3:P~prQvide a cnpy of aU tesony and/or comments
wi,.Çynthi!tMitchell ha$. provided to any state, Io.csl, or fedal 90vemmen~l
branch or taeney in 2007,2008, and 2009.
ßI~Ql TO.REeST NO.3:
. The Industal Customers of Idaho Power objects to this question bau$e it is
overly broad, irrelevant and not likely to lead to the discovery of admissible evidence.
ICIP'S RESPONSE TO IPCO'S SECOND PRODUCTION REQUEST - 3
REQUEST NO.4: Please provide a copy of all testimony and/or comments ICIP
witness Dr. Don Reading has presented in any public utilities' commission proceding
the 2007,2008, and 2009. Copies of testimony and/or comments in proceedings where
Idaho Power was a party do not need to be provided.
RESPONSE TO REQUEST NO.4:
None.
ICIP'S RESPONSE TO IPCO'S SECOND
REQUEST NQ. 5: Please pfovi a copy ofall testimony and/or comments ICIP
witness Dr. pon Reading has provided to any state, locl, or federal governmental
procings where Idaho Power was a part da not nee to be provided.
BsSPQN~ TO REQUEST NO.5:"..,....,_,..'.................d'__...'.......,.......,...,.."....,....................................."
. IneJQdustrl1 Custoers of Idaho Power objects to this question beuse it is
overly broad, irrelevatand.not likely to lead to the discovery of admisleevidence.
Respctully sul:mitted:~ /1t)!.Cr
e~Peter J. Richardson .
Attorney for the Industrial Customers of Idaho Power
ICIP'S RESPONSE TO IPCO'S SECOND PRODUCTlON REQUEST - 5
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the29th day of June, 2009, a true and correct copy
of the within and foregoing of THE INDUSTRIAL CUSTOMERS OF IDAHO POWER'S
RESPONSE TO THE SECOND PRODUCTION REQUEST OF IDAHO POWER
COMPANY was served in the manner shown to:
Ms. Jean Jewell (C)
Comml¡ssfóMSecretary
Idaho Public Utilties Commission
472 W.WaShington (83702)
PO Box 83720
Boise, ID 83720-0074
Lisa Nordstrom (e)
Barton L. Kline
Idaho Power Company
PO'Box70
Boise. Idaho 83707-0070,
Inordstrom~idahopower.com
bkline~idahopower.corn .
SCôttWoodbury (C)
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington
Boise ID 83702
Scott.woodbury~puc.idaho.gov
Dean J. Miner (C)
McDevitt & Miller LLP
420 W. Bannock St (83702)
PO Box 2564
Boise ID 83701
;oetamcdevittmiUer.com
William Borders (e)
Assistant General Counsel
Invenergy Thermal Development LLC
One South Wacker Dr., Suite 1900
Chicago, It 60606
wbordersQinvenergyllc.com
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fCIP'S RESPONSE TO IPCO'S SECOND PRODUCTION REQUeST - 6
Eric L. Olsen
Racine, Olson, Nye, Budge & Bailey,
Chtd.
201 E. Center
PO Box 1391
Poctello, ID 83204-1391
!l2GflQinelaw.net
Anthony Yanke I
29814 Lake Road
Bay Vilage, OH 44140
tQn~'iankel.net
Ken Miler
Clean Energy Program Direcor
Snake River Allance
PO Box 1731
Boise, ID 83701
kmillerßsnakeriverallance.org
Betsy Bridge
Idaho Conservation League
710 North Sixth Street (83702)
PO Box 844
Boise, ID 83701
bbriQgeßwildidaho.org
Susan K. Ackerman
NIPPC
9883 NW Nottage Dr.
Portland OR 97229
Susan. k. ackermanß7comcast. net
Electronic Copies Only:
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rkahnß7nippc.org
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Nina Curtis
Administrative Assistant
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ICIP'S RESPONSE TO IPCO'S SECOND PRODUCTION REQUEST - 7